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What Is a Termination Fee? Meaning and Implications

By Lyle Daly – Updated Mar 12, 2025 at 4:23 PM EST

Key Points

Termination fees in M&A deals typically range from 1% to 3% of total value and are paid by the seller if it backs out of the deal.
Buyers use termination fees to deter other bidders and to protect themselves in the event a deal falls through.
A potential takeover can boost a company's share price but can also increase volatility.

A takeover, when one company acquires another, can be a lengthy and expensive process. To protect themselves, buyers often include a termination fee provision in the preliminary purchase agreement or letter of intent.

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.