Hit from both sides

Author: | Published: 1 Nov 2009

Nicholas Pettifer
Senior staff writer

Private equity is sitting on the cusp of a comeback. Banks are beginning to lend to them again (albeit at much lower leverage) and there are quite a few targets keen to sell. But all is not well. Reverse break-up fees have started to rise and, more worryingly, specific performance clauses are becoming increasingly common. Private equity can try to pass the risk onto the banks, but they are not in the best negotiating position.

As a result, private equity firms are getting stung from both sides. They need to be committed to their decisions to invest and open to negotiation on terms. Standard-form transactions are dead and so is the flippant attitude of using reverse break fees as an option to buy.

Strategics led the way Historically, reverse break fees were pegged to the forward fee of around 3%. But forward and reverse fees are designed...