---
title: "What Is Reverse Break-Up Fee?"
term: "Reverse Break-Up Fee"
description: "A reverse break-up fee is a payment the buyer owes the seller if the buyer fails to close a signed deal — compensating the target for lost time, exclusivity, and transaction costs."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/reverse-break-up-fee
---

# What Is Reverse Break-Up Fee?

> A reverse break-up fee is a payment the buyer owes the seller if the buyer fails to close a signed deal — compensating the target for lost time, exclusivity, and transaction costs.

**Reverse break-up fee** is compensation paid by an acquirer to the target company when the buyer fails to complete a transaction after committing to do so.

### How it works

In signed merger agreements, **break-up fees** usually flow seller-to-buyer if the target accepts a topping bid. **Reverse break-up fees** flow buyer-to-seller if the acquirer terminates without a permitted reason — common triggers include financing failure, regulatory blockage, or material breach by buyer.

Fees are often a fixed dollar amount or percentage of equity value (e.g., 3–5% of deal price in large public deals; smaller absolute sums in private venture exits). They rarely cover full opportunity cost but reimburse legal fees, management distraction, and employee retention plans tied to the deal.

Example: a strategic signs a definitive agreement at $80M. Their lender pulls financing; contract requires a $2M reverse break-up fee to the startup. Founders and investors split proceeds per cap table while restarting a sales process.

Negotiability depends on leverage. Hot assets in competitive processes win stronger reverse fees; distressed sellers may get none.

### Why it matters

- **Founders:** Pair reverse fees with clear closing conditions and timelines; exclusivity without protection extends [runway](/glossary/runway) risk.
- **Investors:** Fee proceeds are usually corporate cash — waterfall rules determine whether preferred or common benefits.

### Common mistake

Assuming a reverse break-up fee in a term sheet is guaranteed cash. Many drafts limit triggers narrowly (regulatory only) or cap fees below actual disruption cost.

### Related ideas

See also [break-up fee](/glossary/break-up-fee), [letter of intent](/glossary/letter-of-intent), [change of control](/glossary/change-of-control), and [escrow](/glossary/escrow).

## FAQ

### What is a reverse break-up fee in simple terms?

A reverse break-up fee is money the acquirer pays you if they back out of a deal they agreed to — for example when financing fails or they get cold feet after signing. It mirrors a regular break-up fee, which the seller pays if they accept a better offer.

### Why does reverse break-up fee matter?

For founders, exclusivity during diligence burns runway; a reverse fee partially insures that risk. For investors on the cap table, it affects how much cash the company keeps if a strategic buyer abandons a signed transaction.


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Source: https://venturecapitaltracker.com/glossary/reverse-break-up-fee