Reverse Termination Fee
Private Equity glossary · Private Equity Fundamentals
Definition
A fee paid by a buyer to a seller if the buyer fails to close due to specified breaches; protects sellers from busted deals.
Reverse Termination Fee in plain English
When a big company agrees to buy another, both sides sign long before the deal actually closes, and the seller takes a real risk: they stop shopping around and wait, trusting the buyer will follow through. A reverse termination fee is the buyer's promise to pay the seller a penalty if the buyer walks away or blows the deal for certain agreed reasons (say, their financing collapses). Think of it like a serious buyer putting down a big deposit on a house that they forfeit if they flake — it compensates the seller for the wasted time and lost other offers, and keeps the buyer honest about closing.
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