Break fee / inducement fee meaning

A break fee (also called an inducement fee) is a sum a target (offeree) agrees to pay a bidder (offeror) if a proposed acquisition fails, typically to reimburse the bidder’s costs or compensate it for a failed process. The term is descriptive rather than statutory and is used across public and private M&A. In UK public takeovers, Rule 21.2 of the Takeover Code prohibits the offeree and its concert parties from entering into any offer-related arrangement with the offeror or its concert parties—broadly, any agreement, arrangement or commitment in connection with an offer—including break fees, unless the Panel consents. Consent is exceptional, most commonly in a white knight scenario or where the offeree has initiated a formal sale process. The prior de minimis practice (normally capping fees at 1% of offeree value) no longer applies. The Irish Takeover Rules adopt an equivalent prohibition and Panel-consent approach. Usage is therefore broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland for public M&A. Outside the Takeover Code/Rules (for example, private M&A), break fees may still be negotiated. Enforceability depends on the penalty rule and liquidated damages principles under local law, and directors’ duties when agreeing deal protection measures.