Developments In Transaction Insurance: Reverse Termination Fee Insurance

Reverse termination fees (RTFs) are fees payable by acquirors if an acquisition agreement is terminated based on the occurrence of certain events that constitute failures of the closing conditions under the acquisition agreement for which the acquirer assumes the risk. These events include financing failures, failure to receive antitrust or other regulatory approvals and national security agencies acting to block a transaction. Reverse termination fees, though rarely paid, represent significant outlays for acquirors. For example, the reverse termination fees payable for antitrust failure have averaged in excess of 5% of the target's equity value in each year since 2020¹.

A new insurance product—reverse termination fee insurance—has recently emerged under which M&A parties can insure the risk that a reverse termination fee becomes payable under an M&A agreement as a result of regulatory issues. Although relatively new in the market, policies have been written to