Break Fee

A break fee compensates a buyer for the cost of a deal that dies on the seller’s side: the diligence bill, the financing commitments, the management time and the opportunity cost of not pursuing something else. It also does quieter work, discouraging rival bidders, because any competing offer must clear the incumbent price plus the fee before the target’s board can prefer it.

That deterrent effect is why the size is contested and why regulators and courts look at it. A fee of one to three per cent of equity value is the conventional range; much beyond that and the fee starts to function as a lock-up rather than a cost recovery. Merger agreements often set two levels, a reduced fee during the go-shop period and a full fee afterwards, on the logic that a bidder emerging from an active solicitation the target itself ran is a different proposition from one that appears unprompted months later. Caesars Entertainment’s 2026 agreement uses exactly that structure, at $100 million and $200 million. For anyone reading a gambling deal, the break fee and the go-shop terms should be read together: a short go-shop with a large fee is a board that has decided, and a long one with a reduced fee is a board still testing the market.