Definition
A reverse break fee (or reverse termination fee) is a fee payable by the bidder to the target upon termination under defined bidder-side triggers — most commonly:
- Financing failure — bidder cannot obtain debt financing for an LBO
- Regulatory denial — antitrust or foreign investment clearance not obtained
- Bidder breach — bidder repudiates the deal or breaches a material covenant
Typical size
- 4–8% of deal value in PE LBO transactions
- Higher (8–10%) in deals with significant regulatory risk
- Sometimes structured as bidder’s exclusive remedy for failed close (limits target’s ability to seek specific performance)
Why it matters
Reverse break fees address the fundamental asymmetry in PE deals: the target is locked up for months while the bidder waits for financing and clearance. The fee compensates for the lost optionality if the bidder walks.
Specific performance vs. fee
Some deals make the reverse fee the bidder’s exclusive remedy; others permit specific performance (court order to close). The choice substantially affects the bidder’s walk-away calculus.