Who pays when a deal goes sour isn’t an easy subject to resolve.  Over the past few years, as these figures from Factset MergerMetrics show, its been a one-way trend for leveraged buyouts - the private equity firm foots the bill.

Year               Percentage of go-privates with reverse fee
2004                21%
2005                17%
2006                49%
2007                76%

(These figures are where U.S. public companies are the targets.)

The credit turmoil could change things. Seen as an “opt-out” by buyout shops trying to get out of a deal, sellers are going to be a lot more nervous about agreeing to reverse-break-up fees, lawyers predict. The changing tide could see a resergence of the pre-boom deals which were structured with ordinary break-up fees and financing outs. 

These figures (from Factset) show a stunning drop in the number of deals with financing conditions:

Year                Perc entage of go-privates with financing conditions
2004                42%
2005                44%
2006                20%
2007                4%  

It isn’t obvious what the solution is if reverse break-up fees are ditched. “I’ve not heard any ideas of a better way to do it yet,” one lawyer told Reuters. The debate continues…