Answers / M&A Advisory

What is a reverse break fee (reverse termination fee)?

A core M&A Advisory interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

A reverse break fee is paid by the BUYER to the seller if the deal fails for reasons on the buyer's side — typically failure to secure financing, failure to obtain antitrust/regulatory or FDI clearance, or the buyer simply walking away. It's the mirror of a (normal) break fee, which a target pays a buyer if it accepts a superior competing bid. Sizes are commonly around 3–6% of equity/enterprise value, and antitrust 'reverse' fees are sometimes higher to compensate the seller for the real risk of a long regulatory process that ends in a block. Its purpose is to give the seller deal certainty and compensate for the lost time, foregone alternatives, and business disruption (employee/customer uncertainty) of a deal that collapses on the buyer. It also disciplines the buyer to commit financing and pursue clearances diligently (often paired with 'hell-or-high-water' efforts standards on antitrust). The fee is a negotiated allocation of deal-failure risk.

WHAT INTERVIEWERS LISTEN FOR

  • ✓Buyer pays seller if deal fails on buyer's side (financing/regulatory/walk-away)
  • ✓Mirror of a normal break fee (target → buyer for a superior bid)
  • ✓Typically ~3–6% of value; antitrust reverse fees can be higher
  • ✓Compensates seller for lost time/alternatives; disciplines buyer commitment

COMMON MISTAKES

  • ✗Confusing it with a normal break fee
  • ✗Not knowing the financing/regulatory triggers
  • ✗Ignoring its link to efforts standards

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