What is a reverse termination fee?
A plain guide to the number on every deal: what it is, how to read it, and the maths.
Tracking Alpha
What it is
The fee the buyer pays the target if the agreement ends in the cases it sets out, typically when an approval is refused or the buyer's financing fails.
- Reverse fee 6.0% of value
- No reverse fee in the filings
How to read it
The Buyer fee column shows it as a share of the deal value; the checklist shows the dollar amount. When the agreement sets several, the largest is shown.
It is paid to the target company, and only in the cases the agreement lists. In private equity deals it is often the most the target can recover if the buyer doesn't close; whether the target can instead make the buyer close is specific performance.
Its dot among the protections is solid when the filings state one and faint when they don't.
- Reverse fee 6.0% of value
- No reverse fee in the filings
How it is worked out
reverse termination fee ÷ deal value
A worked example
Example, with made-up numbers
Deal value $1.0B, reverse termination fee $60M.
- 60 ÷ 1,000 = 6.0%
Related terms
- Termination feeThe fee the target pays the buyer if the agreement ends in the cases it sets out, typically when the target accepts a better offer from someone else.
- Specific performanceThe target's right to ask a court to order the buyer to complete the deal, instead of only collecting a fee or damages.
- Deal valueThe total value of the deal as the companies state it when they announce or revise it.
