Keeping the Engagement Ring: Apportioning Antitrust Risk with Reverse Breakup Fees

Abstract

Reverse breakup fees are payments from a buyer to a seller if an acquisition does not close for specified reasons. The use of reverse breakup fees in private equity transactions has become a common practice and the subject of considerable commentary. Little attention, however, has been given to these clauses in strategic deals to allocate the antitrust risk between merging parties. To be sure, reverse breakup fees remain fairly uncommon relative to other risk shifting devices such as "best efforts" clauses and divestiture requirements. Nevertheless, reverse breakup fees in strategic deals appear to be growing in popularity to reassure sellers of the buyers' ability to obtain regulatory approval and encourage them to proceed with an otherwise risky transaction.

In this article, we compare the application of reverse breakup fees in strategic deals with private equity buyouts and consider their use among other contractual risk-shifting provisions. We also identify significant patterns and trends in these provisions based on a survey of strategic merger agreements containing reverse breakup fees.

Keywords: antitrust, mergers, reverse breakup fees