Still, it's common in acquisitions involving public companies to include provisions that call for "termination fees" should a spring fling fall apart by the dog days of summer.
According to the 87-page merger agreement, Gardner Denver is obligated to pay a breakup fee of $103.4 million under certain circumstances, while KKR must pay $263.1 million under other conditions.
Those are big numbers, but typical of the amounts in other M&A transactions when viewed as a percentage of a deal's overall value. The investment-banking firm Houlihan Lokey reviews all termination fees annually and calculated the 2011 average at 3.3 percent. The amount Gardner Denver would be required to pay is equivalent to 2.8 percent, toward the low end of the 1.1-percent-to-7.7-percent range.
Reverse termination fees date to 2005, Houlihan Lokey says, as sellers grew more concerned when buyers couldn't obtain financing to complete transactions.
Not every M&A deal includes a reverse breakup fee. Fewer than half of the 166 transactions studied by Houlihan Lokey in its 2011 review included such fees. The average for a reverse breakup fee was 5.1 percent of the deal's value; KKR agreed to pay a fee equal to 7.1 percent. Breakup fees rarely are paid, though. Just nine of those 166 transactions collapsed; termination fees were paid in six.
Of course, when a deal ends with "I don't," the payment can be spectacular. In 2011, AT&T Inc. paid a $3 billion reverse breakup fee when its $39 billion offer for T-Mobile USA was blocked by regulators.
That's more than the $2.36 billion Gardner Denver generated from selling pumps, compressors, and blowers in 2012.
Contact Mike Armstrong
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