Tick Tock: The Price of Delay - Escalating Ticking Fees

Ahead of the Deal - Australian M&A Briefing

Introduction

Time can kill deals. It can also impact value. In a world where foreign bidders dominate (see our stats in The M&A Deal Report 2026) and FIRB and now ACCC clearance requirements are on the rise (see Australian Merger Reforms), bidders and targets are starting to use more ticking fee arrangements to deal with the value erosion risk.

Significant regulatory processes can overstretch deal timelines to the better part of a year. During that interval, the target sits in limbo - management attention is divided and key talent may leave; shareholders bear the opportunity cost of capital locked up in a deal that has not yet closed.

Historically, that was simply the price of doing business. In recent years, however, we have seen this dynamic slowly evolve. The recently announced acquisition of ClearView Wealth by Zurich illustrates another step in the development of the ticking fees structure, involving a dual-rate, escalating fee - distinguishing between foreseeable delay and a genuinely protracted regulatory process, and pricing each differently.

How ticking fees work

A ticking fee is a commitment by the bidder to increase the offer price - typically a fixed dollar amount per share for each day after a trigger date without the scheme being implemented. The trigger is usually pegged to the anticipated end of the primary regulatory clearance period. Once that date passes, the meter starts running.

Example: a bidder offering $5.00 per share agrees to a ticking fee of $0.005 per share per day, i.e. $0.15 per share per month of delay beyond the trigger date. After two months' delay, shareholders receive $5.30. After four months, $5.60. The numbers are not trivial - and generate a return for shareholders, recognising the return they would otherwise forgo by remaining locked into the deal on today's prices rather than redeploying capital elsewhere. In other words, target shareholders are compensated for regulatory approval delays.

Ticking fees tend to be structured as an additional scheme consideration, calculated according to a specified formula. Provided the mechanism for determining the final consideration is clearly set out in the scheme documents, this will satisfy the court's requirement (and shareholders' expectation) that there be certainty as to the amount of the scheme consideration at the scheme meeting, even though its precise quantum may not be determined until immediately prior to scheme implementation.

Trigger date

Choosing the right trigger date is one of the more consequential negotiating points in any ticking fee negotiation. To date, ticking fees on scheme transactions have trigger dates based on a fixed long stop date of between 4-10 months after the announcement date. A fixed date trigger provides shareholders with certainty about when the fee will kick in, regardless of the regulatory processes involved.

Alternatives to ticking fees

Ticking fees are not the only tool available to target boards seeking to compensate shareholders for delay or regulatory risk.

Special dividend

The most common alternative is a permitted special dividend payable at implementation. Permitted dividends have been around in schemes for some time, especially if franking credits form part of the value proposition. This offers shareholders a tax-effective uplift that a cash consideration from the bidder (treated as additional capital proceeds for CGT purposes) cannot match.

If its payability is tied to completion timing or the satisfaction of regulatory CPs, it also incentivises the buyer to act quickly to secure completion (and in doing so, seek its regulatory approvals as soon as possible).

An early example was the Intega / Kiwa transaction (2021)* which involved a dividend that was payable as a result of transaction completion delays. The permitted special dividend started at $2,283,333 (being the total amount for all target shares), payable if the scheme was not implemented by about four months after the date of the scheme implementation deed, and increased by $2,283,333 each month until a maximum of $13,699,998.

A more recent example is the Insignia Financial / CC Capital transaction (2025)* where Insignia Financial was permitted to pay a special cash dividend based on a 50% payout of underlying net profit after tax for each calendar month that elapsed from (and including) 22 July 2026 (being the date that is 12 months after the date of the scheme implementation deed) to (and including) the date of the scheme meeting.

In both examples, any special dividend paid would not reduce the scheme consideration. It is fair to say that these concepts were not far off the ticking fee structures that we see today. Certainly from 2023 onwards, there have been higher profile examples of ticking fees.

Reverse break fee

A reverse break fee benefits the target, but assumes the deal will not proceed. Reverse break fees have become more prevalent due to the volatile economic environment and risks associated with obtaining regulatory approvals - such fees were agreed in 65% of deals in 2025, up from 63% of deals in 2024, 56% of deals in 2023 and 51% of deals in 2022.

However, a reverse break fee is not a true alternative to a ticking fee. What if the deal can still proceed but the value proposition has changed over time? This is when ticking fees can help. A reverse break fee is paid when a deal breaks. A ticking fee creates continuous pressure to close quickly and is payable when the deal completes. This may be more appropriate for a deal with good completion prospects but a long regulatory runway.

The ClearView Wealth scheme: a different approach to ticking fees

A fee with two ticks

The proposed Zurich acquisition of ClearView Wealth stands out because of how its ticking fee is structured.

Both companies operate Australian life insurance businesses. Regulatory approvals from APRA and the ACCC are required before implementation. As a result, the realistic implementation timeline is relatively long. Against that backdrop, a single-rate ticking fee would have been inadequate. The dual-rate, escalating structure addresses this effectively.

The dual-rate mechanism

The ClearView Wealth ticking fee operates in two tranches.

1. If the scheme does not become effective after ~7 months after signing the scheme implementation deed (being the anticipated regulatory clearance window), a base rate applies. The base rate accrues on a daily basis for three months.
2. If the scheme is still not effective after ~10 months, the fee automatically steps up (50% increase) to a higher rate.

The dual-rate design has several advantages:

• it distinguishes between a 'shorter' delay of up to 7 months (priced at the base rate), and a protracted delay that means the scheme has still not become effective 10 months after the signing date (priced at the higher rate);
• it creates a step-change in the bidder's financial exposure at the point where regulatory drag shifts from relatively 'routine' to extended and problematic; and
• it provides more flexibility and negotiation levers than a linear fee as the parties need to negotiate the transition date to the higher rate, the base rate, and the higher rate.

There is also a market messaging effect. A bidder willing to accept an escalating ticking fee is publicly committing to a view about the regulatory timeline. The higher rate is, in effect, a statement of confidence that the bidder expects to close within the initial period, and is prepared to pay a premium otherwise.

That said, the escalation in ClearView Wealth - from approximately 0.009 cents per share per day to 0.013 cents per share per day - is relatively modest for a ~$415 million deal. Its primary function is incentive alignment rather than full economic compensation. It does not expose Zurich to significant liability for a prolonged process.

Why aren't ticking fees more common in Australia?

Given the obvious utility of ticking fees, it is worth asking why they have not been more prevalent until recently.

In our view, the main reason is that average regulatory timelines have historically been shorter. Before the new mandatory merger clearance regime in January 2026, ACCC review was largely informal and voluntary for most transactions. FIRB review periods, while capable of extension, were often concluded within statutory timeframes (aside from when sensitive sectors or consortia of multiple foreign investors are involved). Target boards could reasonably assume the gap between signing and implementation would be measured in months, not the better part of a year. The need for a ticking fee was therefore less pressing.

The reverse break fee has also traditionally been viewed as the primary remedy for regulatory failure. Deal doesn't proceed because a regulatory condition isn't satisfied? The target receives the reverse break fee (typically ~1% of deal value) and moves on. This binary protection was considered sufficient compensation for the risk that shareholders might wait months for a deal that ultimately fell over.

The Mayne Pharma / Cosette litigation demonstrated the limits of this approach. The bidder sought to invoke the MAC clause to exit, leaving the target in extended uncertainty as the dispute was litigated. That experience underscored the value of continuous compensation mechanisms. Ticking fees provide ongoing value to shareholders during regulatory limbo - noting, however, that a ticking fee is only payable if the transaction completes.

Recent market examples

Several recent Australian transactions illustrate the growing use and diversity of ticking fee structures:

• CSR Limited / Saint-Gobain ($4.3 billion, February 2024): An "Additional Consideration Amount" of $0.0006575 per CSR share per day if the effective date did not occur by 26 June 2024. The effective date occurred on 19 June 2024.
• Origin Energy / Brookfield and EIG (~$18.7 billion, March 2023): An "Additional Consideration" of $0.001479 per Origin share per day if implementation did not occur by 30 November 2023. Given the complexity of regulatory approvals required (including FIRB, ACCC and NOPTA), a ticking fee was appropriate protection for Origin shareholders. The acquisition did not proceed.
• Qube Holdings / Macquarie Asset Management-led consortium (~$11.7 billion, February 2026): Where the parties agree to extend the end date beyond 10 months from the date of the scheme implementation deed (ie 15 December 2026), an "additional cash amount" of $0.02 per Qube share per month, accruing daily from (and including) 15 December 2026 to (and including) the scheme effective date. Regulatory approvals are required from FIRB, the PNG Independent Consumer and Competition Commission, ACCC and New Zealand Overseas Investment Office. Against this backdrop and the potentially long regulatory timeline, an escalating ticking fee creates a strong incentive to complete promptly.

Other considerations

MAC provisions

One tension worth watching is the interaction between ticking fees and material adverse change (MAC) provisions. As a ticking fee accumulates, the bidder's total exposure on the deal increases. A bidder facing a growing ticking fee liability may be tempted to characterise a business development as a MAC (and trigger a right to exit) rather than allow the ticking fee to continue to accrue.

Careful drafting of MAC carve-outs is therefore a very important protection for target shareholders and more so where significant break or ticking fees are involved. Express provision that regulatory delays and associated costs are not grounds for claiming a MAC is essential. Focus on MAC negotiation and drafting has only increased following the Mayne Pharma / Cosette litigation.

Tax considerations

The tax treatment of ticking fees can be complex and will depend on the specific circumstances of individual shareholders.

Target boards and their advisers should consider whether specific tax guidance (including, potentially, a class ruling from the Australian Taxation Office) is warranted, particularly where the ticking fee quantum is likely to be material. Key issues that may arise include the characterisation of the ticking fee for capital gains tax purposes, whether the CGT discount is available, and the timing of any CGT event where a scheme straddles financial years. For foreign shareholders, withholding tax obligations and the application of any relevant double tax agreement should also be considered.

Will we see more ticking fees?

The new Australian merger regime has given the ACCC expanded powers and greater regulatory oversight of transactions, and is likely to generate more, not fewer, extended reviews.

As regulatory timelines lengthen, target boards, emboldened by the ClearView Wealth example, can be expected to request escalating ticking fees with greater frequency to compensate shareholders for the uncertainty and delays in obtaining regulatory approvals.

The recent Mayne Pharma / Cosette litigation demonstrates that the FIRB approval process can also operate as a significant source of deal uncertainty. The FIRB process can also extend well beyond the statutory 30-day period through voluntary extensions and conditions negotiations. As the proportion of Australian public company transactions involving foreign bidders increases, the demand for sophisticated ticking fee mechanics is likely to increase to address the regulatory exposure faced by target companies and their shareholders.

We predict that most transactions involving a significant regulatory review component will likely be accompanied by (or involve negotiations concerning) an escalating ticking fee or permitted special dividend for the target and/or its shareholders. There is an open question as to the right quantum. Target boards would justifiably seek more significant step-ups to compensate shareholders for the opportunity cost of locked-up capital.

Just as break fee rates have converged on ~1% of deal value, ticking fee rates and escalation mechanics may coalesce around emerging reference points.

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