The Rise of Breakup and Reverse Termination Fees in M&A

In March 2025, Alphabet, Google’s parent company, agreed to acquire Israeli cybersecurity startup Wiz for approximately $32 billion, making it the largest acquisition in the company’s history. This deal is significant not only for its size but also for its unique structure. The deal reportedly includes a reverse termination fee of about $3.2 billion, representing 10% of the total transaction value—an unusually high percentage. This high-profile example provides a case study to reassess the purpose, doctrine, and market dynamics of breakup fees and reverse termination fees in modern M&A, and also to consider how Delaware’s reasonableness framework may evolve as fee levels rise. 

What are Breakup and Reverse Termination Fees? 

A breakup fee is a contractual payment by the target to the buyer if certain events occur that prevent the transaction from closing. A reverse termination fee (“RTF”) reverses the direction: the buyer pays the target if the buyer fails to close under defined conditions, such as failing to obtain regulatory approvals, secure financing, or satisfy other closing conditions. These fees serve as risk allocation tools. They compensate for sunk and opportunity costs, deter opportunistic walkaways, and shift execution or regulatory risk to the party best placed to bear it. 

Delaware’s Framework: Reasonableness without a Fixed Cap

Delaware law does not impose a fixed cap on breakup fees. Courts ask two key questions: is the fee a reasonable estimate of deal risks and costs (rather than a penalty), and does the overall protection package avoid deterring superior bids? In In re Toys “R” Us Shareholder Litigation, the Court of Chancery emphasized that deal protections must not be preclusive or coercive. Market practice commonly cites a 3%–4% band for target-paid breakup fees, and materially higher fees attract closer scrutiny. Delaware’s review is contextual. Courts consider the deal’s size, regulatory and financing risks, the board’s process and advice, whether other bidders were present, and how all protections operate together. There is no formula; what matters is clear reasoning and evidence that links the fee to the deal’s risk. 

Why Are Reverse Termination Fees Rising? 

Some may argue that very large RTFs may discourage competing bidders or mask uncertainty around financing, especially in auction settings. Despite this, RTFs have trended upward across a range of transactions due to several structural forces. 

First, regulatory risk, particularly antitrust and national security reviews, has lengthened timelines and increased closing uncertainty. When regulatory clearance is the principal execution risk borne by the buyer, a robust RTF prices and allocates that risk and compensates the target for prolonged exposure if clearance is not obtained. 

Second, in competitive auctions, a large RTF can signal the buyer’s strength and seriousness. It shows that the buyer is confident in its ability to close the deal and stand behind the offer. 

Finally, public precedent shapes expectations. Once a few large RTFs become known, they create a benchmark that other parties can point to, especially in industries where closing is challenging. Over time, this makes high RTFs feel less like outliers and more like part of ordinary deal economics. 

Implications for Deal Practice and Legal Doctrine 

RTFs also differ by purpose – some focus on regulatory failure, some on financing issues, and others on broader breach. Each category raises different considerations under Delaware law, particularly when courts assess whether the fee is proportional to the risk being shifted.  

For target boards, the key takeaway is to follow a careful process and keep detailed records. When approving unusually large fees, boards should document how the fee was determined, why it makes sense for this deal, and rely on professional advice. They should also review all other deal protections together to make sure they don’t discourage better offers or limit stockholders’ options.For buyers, agreeing to a large RTF increases both cost and risk. They should have a strong plan for getting regulatory approvals, clear obligations to act diligently, and reliable financing. Without these, a high RTF could become a major financial and reputational problem if the deal collapses.

At a broader legal level, the rise of unusually high fees is likely to push Delaware courts to scrutinize more closely how these numbers are decided. Judges may want to see data or analysis supporting the fee size, and they could question whether other tools, such as smaller step-based payments or cost reimbursements, might handle risk more fairly. 

Conclusion

Alphabet’s agreement to acquire Wiz, with a reverse termination fee near 10% of deal value, illustrates how deal protection terms are changing as regulatory hurdles, timelines, and competition between buyers grow. Delaware law does not limit the size of such breakup fees but instead focuses on whether they are reasonable and based on real risk. For both companies and lawyers, the lesson is simple: large RTFs can be justified when supported by good reasoning and documentation, but they must be carefully structured and transparently explained. As these fees become more common, Delaware’s courts will likely pay closer attention to whether they truly match the risks they are meant to cover.

Helena Malinowski Pinhas is an LL.M. candidate at the New York University School of Law, specializing in Corporate Law, where she serves as a Graduate Editor for the Journal of Law and Business. Helena currently serves as in-house legal counsel at Paragon, an Israeli technology startup, where is handles corporate and commercial matters. Before joining Paragon, she practiced for nearly six years at Herzog, one of Israel’s leading law firms, advising startup companies and investors. She holds an LL.B. and a B.A. in Accounting from Tel Aviv University. She is admitted to practice law in Israel, with her application for admission to the NY Bar in progress after passing the July 2025 exam.