POLL: should break fees be brought back?

Author: Olly Jackson | Published: 17 Apr 2018
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In 2011, the UK banned break fees because they were said to be deterring competing bids for target companies and cause less value-creating deals. An investigation by the UK government’s Takeover Panel concluded that the change would encourage bidders to make offers for companies, which would make prices more competitive and stimulate the M&A market. At the time, the M&A market was still recovering from the financial crisis. The European M&A market was making slow progress, but in terms of deal volume, numbers were declining quarter on quarter at the end of 2011. The panel believed a ban on break fees would help to stimulate the market.

Just how successful the ban has been is up to interpretation. While the M&A market has made a spectacular bounce, the most ardent supporter of the ban could not attribute this recovery solely to the 2011 decision, particularly given the US market’s success. The success of the decision will largely be judged on whether the government’s objectives were met – more competing bids for businesses and more value-creating deals. It is difficult to assess whether they have been successful with so many variables in play.

As IFLR wrote last week, reverse break fees are expected to make a resurgence, despite the expectation that they would completely disappear after the ban on break fees. With valuations getting higher and higher and competition never more intense, it is time to bring back break fees?

IFLR is keen to hear readers’ views on this issue. Please contact Olly Jackson at: olly.jackson@legalmediagroup.com or +44 (0) 20 7779 8661.

 

See also

How to win at M&A

Chinese outbound M&A comes of age

Brazil: M&A reverse break-up fees