Break-up fee

Definition

Between LOI signing and SPA closing, the buyer has invested 4-12 weeks of DD, legal costs, and management bandwidth: often €100-500k of sunk cost. If the seller decides to abandon the deal during this window (perhaps because a competing buyer made a stronger offer, or the founder changes their mind about selling), the break-up fee compensates the buyer for the lost investment.

The Benelux 2026 mid-market break-up fee structure. Three common tiers we see in practice: (1) DD-cost recovery: €100-400k flat fee covering the buyer's sunk DD/legal costs. Used in straightforward deals. (2) Proportional break-up: 1-2% of transaction value, providing both DD-cost recovery and a partial loss-of-bargain. Most common Benelux mid-market default. (3) High-quantum break-up: 2-4% of transaction value, used when the buyer has significant strategic value at risk or when competing-bidder threats are credible.

The permitted exit carve-outs. Five standard structures in 2026 Benelux LOIs: (1) "Fiduciary out": seller's directors can withdraw if continuing would breach fiduciary duties. Required in public-company contexts; rare in pure private SME M&A. (2) "Buyer breach exit": seller can walk without fee if the buyer breaches a material LOI obligation. (3) "Force majeure": neither party pays if events outside their control prevent closing. (4) "Long-stop date" exit: either party walks if the deal hasn't closed by the agreed date. (5) "Materially superior offer": seller can pay the break-up fee and accept a meaningfully better third-party bid.

The enforceability question. Belgian courts (BW 1226-1231) and Dutch courts (BW 6:94) both moderate break-up fees that exceed reasonable compensation. The proportionality test in 2026: 1-3% routinely upheld; 4-5% sometimes moderated; 6%+ regularly reduced or struck down. A seller facing an excessive break-up fee can challenge in court, with reasonable prospect of moderation.

The interaction with no-shop clauses (see [[no-shop]]). The break-up fee is typically the financial consequence of breaching the no-shop. Standard pattern: LOI includes 60-90 day no-shop exclusivity for the buyer, paired with break-up fee triggering if the seller breaches by negotiating with another party. This pairing gives the buyer (a) protection from competitive distraction during DD, and (b) cash compensation if the protection fails.

A worked Benelux example. A Mechelen technology firm signs an LOI in March 2026 with a Belgian strategic buyer at €18m enterprise value. The LOI includes 75-day no-shop exclusivity and a 2% break-up fee (€360k) triggered if the seller walks outside permitted carve-outs. In May 2026, a Dutch PE firm makes an unsolicited offer at €22m. The seller faces a choice: continue with the original deal (€18m), or pay the €360k break-up fee and pivot to the PE offer (net €21.64m). The seller pivots, pays the break-up fee, and closes with the Dutch PE 3 months later. Net seller benefit despite break-up fee: €3.64m.

Worked example

Enterprise value (LOI): €18m. Break-up fee: 2% = €360k. No-shop period: 75 days. Mid-period unsolicited offer: €22m. Seller path: pay €360k, pivot to higher bid. Final clearing: €22m. Net seller benefit vs original deal: €4m gross / €3.64m net of break-up fee. Original buyer compensation: €360k for sunk DD/legal costs.

When it matters

Every Benelux mid-market LOI should include a break-up fee structure to protect the buyer's DD investment and signal seller commitment. Quantum: 1-3% of transaction value for standard deals (proportionate range that holds up under BE/NL court review). Avoid the 5%+ range: courts moderate as disproportionate. Permitted carve-outs should include force majeure and long-stop date; fiduciary out is optional based on seller risk tolerance.

Frequently asked

Break-up fee vs reverse breakup fee: same thing?

No, mirror opposites. Break-up fee: seller pays buyer if seller walks. Reverse breakup fee (see [[reverse-breakup-fee]]): buyer pays seller if buyer walks. Most Benelux mid-market deals include both in some form: break-up fee for seller-side walk-away risk (no-shop breach, superior offer), reverse breakup fee for buyer-side walk-away risk (financing failure, regulatory denial). The asymmetric exposures often lead to different quantum levels: typically 1-3% break-up, 2-5% reverse breakup.

Can a seller pay the break-up fee and walk for any reason?

Generally yes in well-drafted Benelux LOIs: the break-up fee is the seller's "exit option price." If the seller decides to walk for any reason not covered by permitted carve-outs (better offer, change of heart, business deterioration), paying the fee releases them from the deal. The buyer's remedy is the fee, not specific performance. This is the standard 2026 mid-market structure unless the LOI explicitly states otherwise.

What if the seller walks because the buyer behaved badly?

Then no break-up fee: buyer breach is a permitted carve-out in all standard LOIs. Examples: buyer fails to commit financing, buyer demands disproportionate price chips not justified by DD findings, buyer fails to engage in good faith. The seller can walk and may have damage claims against the buyer for bad-faith conduct. Practically: documenting buyer breach is critical before walking, to defend against later break-up fee claims.