Inside M&A - March/April 2009

Extract

---

Inside M&A - March/April 2009

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 tarnished,

suddenly felt that rather than protecting them, reverse termination

fees simply provided buyers with a relatively inexpensive option to

buy the target company—or not.

Historically, sellers have had less deal protection concerns

with strateg...

See the full content of this document

---