Broken Deal Costs
Private Equity glossary · Private Equity Fundamentals
Definition
Diligence, legal, and advisory fees a fund incurs on a transaction that does not close; typically borne by the fund (charged to LPs) under modern LPA terms.
Broken Deal Costs in plain English
When an investment fund chases a deal — hiring lawyers, accountants, and advisors to inspect the company — that work costs real money, whether or not the deal actually happens. 'Broken deal costs' are exactly those fees for a deal that falls apart before closing. It's like paying for a home inspection and an appraisal on a house, then having the sale collapse — you still owe the inspectors. Under today's standard fund agreements, these dead costs are typically passed on to the fund's investors (the 'LPs,' the outside people whose money the fund invests) rather than absorbed by the managers themselves.
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