Vanderbilt Law Review

First Page



Acquisition agreements are peppered with various provisions designed to mitigate, allocate, or address the ramifications of deal risk. The potential for deal risk is particularly pronounced in acquisition transactions involving public companies, which generally entail a significant interim period between the date of the signing of the acquisition agreement and the date of the completion of the transaction. Allocation of deal risk is a vital component of deals where millions, if not billions, of dollars are at stake for buyers and sellers, as well as their shareholders and stakeholders. Perhaps the most obvious deal risk is of one party abandoning the transaction. One of the primary ways of dealing with this risk is through termination fee provisions. Typically, acquisition agreements provide for a standard termination fee ("STF') to be paid by the seller in the event that the seller does not complete the transaction due to specific triggers. These triggers commonly involve situations where a third-party bidder for the seller emerges. In an increasing number of transactions, acquisition agreements provide for a reverse termination fee ("RTF")-that is, a payment by the buyer in the event the buyer cannot or does not complete the acquisition as specified in the agreement.