Reverse Termination Fee
A reverse termination fee is a contractual payment that a buyer or parent may owe the seller or target if an acquisition agreement is terminated under specified circumstances defined in the agreement.
The fee runs from buyer to seller
A conventional company termination or breakup fee often runs from the seller or target to the buyer in specified circumstances, such as accepting a superior proposal. A reverse termination fee runs the other direction.
That distinction matters because the underlying risks are different. The reverse fee commonly addresses buyer-side failure rather than seller fiduciary-out dynamics.
Triggers are negotiated, not automatic
Recent 2026 SEC filings show reverse termination fees tied to different events: uncured buyer breach, failure to consummate after closing conditions are satisfied, or specified antitrust and regulatory outcomes.
A deal can have no reverse fee at all, or can use one only for narrow circumstances.
The fee can substitute for broader damages
Some agreements describe the reverse termination fee as liquidated damages and make payment the sole and exclusive remedy for the covered termination event. Others preserve additional remedies for fraud, willful breach or specific performance.
The remedy clause determines whether the fee is a floor, a ceiling or one component of a broader enforcement structure.
Specific performance can coexist with the fee
A seller may have a right to seek specific performance requiring the buyer to close if contractual conditions are met. The agreement can define when that equitable remedy is available and how it interacts with the reverse termination fee.
A large fee does not automatically mean the buyer has a simple option to walk away.
Private-equity financing risk can be central
In sponsor-backed acquisitions, the target may focus on whether committed financing is available, what obligations the sponsor has to enforce financing commitments, and what happens if debt funding fails.
The reverse fee can be part of that allocation, but financing provisions and limited-guarantee structures also matter.
Common mistakes
Calling it a buyer walk-away price The buyer may still face covenants, specific performance or breach consequences.
Looking only at the amount Trigger conditions determine practical value.
Assuming it always covers regulatory failure Some agreements allocate regulatory risk differently or tie the fee to buyer breach.
Example
A merger agreement requires the buyer to pay a $100 million reverse termination fee if the transaction is terminated because a specified regulatory closing condition fails under circumstances allocated to the buyer. If the agreement makes that payment the seller’s sole remedy for that event, the seller may receive the fee rather than ordinary expectation damages.
Example
A merger agreement requires the buyer to pay a $100 million reverse termination fee if the transaction is terminated because a specified regulatory closing condition fails under circumstances allocated to the buyer. If the agreement makes that payment the seller’s sole remedy for that event, the seller may receive the fee rather than ordinary expectation damages.
Professional note
A reverse termination fee should be evaluated with the agreement’s financing covenant, regulatory-efforts covenant, specific-performance provision and remedy limitations. The dollar amount alone does not reveal which failure risks the buyer actually assumed.
Related terms
- Letter of Intent (LOI)
A letter of intent, or LOI, is a preliminary transaction document that records the principal terms on which parties intend to pursue a deal before negotiating and signing definitive agreements.
- Exclusivity Period
An exclusivity period is a negotiated span during which a seller agrees to restrict or stop discussions with competing buyers while a selected bidder pursues a transaction.
- Material Adverse Effect (MAE)
A Material Adverse Effect, or MAE, is a contractually defined level of adverse change that can affect specified rights or closing conditions in an acquisition agreement. The definition typically includes broad adverse-effect language followed by negotiated exclusions and, often, disproportionate-impact exceptions.
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