Reverse break fee

The reverse break fee is a sum the buyer undertakes to pay the seller if the transaction fails for a reason attributable to it. It is the mirror of the Break fee, which is owed by the seller who walks away; here it is the buyer who bears the cost of a failure, for example the inability to secure its financing or a regulatory clearance.

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This mechanism protects the seller against the execution risk specific to the buyer, particularly present where completion depends on sensitive Conditions Precedent (M&A) such as securing acquisition financing or antitrust clearance. By signalling its confidence in its ability to close, a buyer that accepts a reverse break fee also strengthens the credibility of its offer.

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For example, the buyer undertakes to pay a reverse break fee of 3% of the price, that is 0.45 MCHF on a 15 MCHF deal, if it fails to secure its financing. This undertaking reassures the seller as to the strength of the offer in the interval between signing and closing.

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The amount, expressed as a percentage of deal value, and the precise triggering cases are carefully negotiated, since they set the balance of risk between signing and closing. The reverse break fee is more frequent on large deals, but also appears on SME sales where execution uncertainty weighs more on the buyer, a trade-off informed by mergers and acquisitions advisory.