What Is a Walkaway Right?
A walkaway right (also called a termination right or walk right) is a provision in a merger agreement that allows a party to terminate the transaction without liability — or with limited liability — under specified circumstances. Walkaway rights define the boundaries of each party’s commitment to the deal and provide exit mechanisms when the transaction cannot or should not proceed.
Walkaway rights are among the most critical provisions in any M&A agreement because they determine when a party is free to abandon the deal and what consequences attach to that decision.
Common Walkaway Rights
Mutual Termination Rights
Both parties can terminate if:
| Trigger | Description |
|---|---|
| Outside date | The deal has not closed by the agreed deadline |
| Regulatory prohibition | A government authority permanently blocks the transaction |
| Mutual agreement | Both parties agree to terminate |
| Shareholder rejection | Required shareholder approval is not obtained |
Buyer Walkaway Rights
The buyer can terminate if:
| Trigger | Description |
|---|---|
| Material adverse effect | The target suffers an MAE that is not cured |
| Breach of representations | Target’s representations and warranties are materially inaccurate |
| Breach of covenants | Target fails to comply with material covenants |
| Financing failure | Committed financing is unavailable (in some deals) |
Seller Walkaway Rights
The seller (target) can terminate if:
| Trigger | Description |
|---|---|
| Superior proposal | Board accepts a competing offer (subject to termination fee) |
| Buyer breach | Buyer fails to comply with its obligations |
| Financing failure | Buyer cannot fund the transaction |
| Recommendation change | Board changes its recommendation due to an intervening event |
Key Negotiation Points
MAE Walkaway
The MAE definition is the most heavily negotiated walkaway trigger:
- Buyer wants — broad MAE definition to maximise walkaway flexibility
- Seller wants — narrow MAE definition with extensive carve-outs (general economic conditions, industry-wide effects, pandemic effects)
- Practical reality — MAE claims are extremely difficult to prove; very few deals have been terminated based on MAE
Outside Date Extension
- Standard — 6-12 months from signing
- Extension — automatic or optional extension if regulatory approvals are pending
- Ticking fee — in some deals, the buyer pays a daily fee if closing is delayed beyond a specified date
Reverse Termination Fee
When the buyer walks away due to financing failure or regulatory block, a reverse termination fee may be payable:
- Typically 3-6% of equity value
- Compensates the target for lost time and opportunity
- Particularly important in PE-backed transactions where financing risk exists
According to Practical Law (Thomson Reuters), virtually all negotiated public company merger agreements include mutual walkaway rights tied to an outside date, with the median outside date being approximately 9 months from signing.
APAC Context
Australia — walkaway rights in Australian scheme of arrangement implementation deeds include sunset dates (equivalent to outside dates), MAE triggers, and prescribed occurrence triggers. The Takeovers Panel’s guidance on deal protection informs the scope of permitted termination triggers.
Japan — walkaway provisions in Japanese M&A agreements (kaiyaku jōkō) typically include outside dates, regulatory failure, and material breach triggers. Japanese practice tends to include more limited MAE definitions, reflecting the cultural preference for deal completion once agreements are reached.
India — termination provisions in Indian M&A agreements must consider the specific regulatory approval timelines (CCI, SEBI, RBI, NCLT), which are often longer and less predictable than in other markets. Outside dates in Indian transactions are typically set at 12-18 months to accommodate these timelines.
“Walkaway rights define the boundaries of deal commitment — they determine what each party is willing to accept and when they can walk away,” observes Daniel Bae, founder of Amafi. “In APAC cross-border transactions, walkaway rights must be calibrated to the specific regulatory timelines and risks of each jurisdiction.”
Negotiating M&A agreements across Asia Pacific? Amafi helps companies and investors structure deal terms with appropriate protections. Learn more.