STRATEGIC BUYERS DISCOVER REVERSE TERMINATION
FEES
By Dennis J. White
In the wake of the continuing credit crunch, the use of
"reverse termination" or "reverse break-up"
fees has expanded beyond the ranks of private equity buyers and
been adopted by strategic acquirors. This phenomena is still
evolving, and questions remain as to the appropriate size of such a
fee, as well as the basis upon which it will be triggered and a
strategic buyer can exit a deal through its payment.
Reverse termination fees have in recent years become relatively
common in private equity acquisitions. Sellers pushed such
fees in order to enhance certainty of closing. Private equity
buyers viewed such fees, when coupled with an exclusive remedy
provision, as providing a ceiling to their exposure. When the
credit crunch hit, some private equity buyers used such fees as a
means to terminate transactions that they no longer found
attractive. Jilted sellers, with their reputations
