DealLawyers.com Blog

August 29, 2022

Reverse Termination Fees: Analysis of Size Ranges

Reverse termination fees are an interesting topic – unlike termination fees, there’s little reason for Unocal or Revlon concerns to potentially limit their size and good reason to think that they can be pretty sizeable in comparison to overall deal value without being regarded as a penalties. That leaves a lot of room for the parties to a deal to horse trade when it comes to these fees, and a recent Bloomberg Law analysis of 78 deals with reverse termination fees entered into during the past three calendar years suggests that they often do just that.

The analysis demonstrates that the size of those fees has varied pretty widely in recent years – and that the highest fees in 2021 & 2022 are well above what you might expect to see in the context of a termination fee:

Twenty-one of the 78 M&A agreements reviewed were for deals signed in 2020. These deals contained reverse termination fees that ranged from 0.3% to 5.7% of the total deal values. The range of the reverse termination fees encompassed in agreements signed in 2021 was much wider—the reverse termination fees in those 38 deals ranged from 1.1% to 15% of the total deal values. The remaining 19 agreements—signed through mid-July of 2022—showed a similar range of percentages to the range in 2021. Specifically, these agreements’ reverse termination fees ranged from 1.6% to 14.7% of total deal value.

The analysis also looks at the sizes of reverse termination fees tied to the failure to obtain required regulatory approvals regulatory conditions versus those not tied to regulatory approvals and identifies the 2022 deals that came in at the lowest and highest ends of the reverse termination fee range.

John Jenkins