A founder sold his business to a financial sponsor in early 2024. The merger agreement carried a $14 million reverse termination fee, an “unconditional obligation to fund” commitment letter from the sponsor’s lender, and the standard specific-performance clause that lets the seller force the buyer to close if the closing conditions are met. Nine months after signing, the lender backed away on diligence concerns the sponsor said were unforeseeable. The sponsor sent notice of termination and tendered the $14 million.
The founder’s first reaction was that he had been paid to lose the deal. The $14 million covered some of his costs but not the value of nine months of operational distraction, lost commercial momentum, and the price the business now commanded in a colder M&A market. He wanted to force the sponsor to close. His lawyer told him the question of whether he could turned on a careful reading of the merger agreement’s remedies section — specifically, whether the specific-performance clause was structured to survive the sponsor’s invocation of the reverse termination fee, or whether it was, as buyers’ counsel often try to draft it, conditioned away the moment the termination fee was paid.
The reading went against him. The merger agreement’s drafting made the reverse termination fee the exclusive remedy for the failure to close, and the specific-performance clause was inapplicable once the fee was tendered. He took the $14 million and walked.
This is a pattern that has recurred frequently enough in the PE-buyout world to constitute its own genre of deal failure. The 2023-2024 Chancery line, capped by the Court of Chancery’s 2024 ruling in Crispo v. Musk, did not change the underlying drafting issue — it sharpened it. Sellers signing with PE buyers in 2026 need to know what the specific-performance backstop actually does, and what it does not, before signing.
What the doctrine actually says
Specific performance, in the M&A context, is the equitable remedy by which the seller can force the buyer to close the transaction as agreed. Delaware Chancery has historically been willing to grant the remedy where the merger agreement provides for it and the closing conditions are satisfied. The doctrine is older than the modern private-equity buyout market, but its modern application to PE deals goes back to the financial crisis, when buyers walked from deals at scale and Chancery — most prominently in Hexion v. Huntsman and a series of cases in 2008-2009 — was willing to enforce closing obligations against unwilling buyers.
The architecture that emerged from that period had three load-bearing pieces. The merger agreement granted the seller specific performance as a remedy. The buyer obtained committed financing through equity commitment letters and debt commitment letters that ran to the buyer’s special-purpose vehicle. And the merger agreement carried a reverse termination fee, sized smaller than the deal value, to allow the buyer a controlled walk if the financing failed or other contingencies materialized.
The seller-side fight, in agreements drafted across the next decade, was over whether the reverse termination fee was the seller’s exclusive monetary remedy and whether specific performance was available alongside it or only in lieu of it. Buyers’ counsel pushed toward exclusive-RTF drafting; sellers’ counsel pushed for specific performance to remain available where the closing conditions were met. The market drifted, broadly, toward exclusive-RTF with carve-outs — but the carve-outs varied, and the variance is the source of much of the recent litigation.
The Crispo v. Musk opinions in 2023 and 2024 cleaned up some doctrinal questions about who has standing to enforce a merger agreement and what damages a target’s stockholders can recover when the buyer breaches. They did not, however, give sellers a default specific-performance right where the contract did not provide one. The doctrine remained, as it has been, contract-driven. A seller who wants specific performance has to negotiate for it explicitly. The current Delaware Court of Chancery opinions docket shows continued post-Crispo activity on remedies questions in 2025-2026, and the cases consistently reward sellers whose agreements were drafted with care and punish sellers whose agreements were not.
Where PE-buyer agreements typically fail
The drafting failures I see most often in PE-buyer agreements fall into three categories.
First, the specific-performance clause is conditioned on the equity commitment letter being callable. PE buyers fund deals through equity commitment letters from the sponsor to the acquisition vehicle. The seller’s specific-performance right is often drafted to be available only if the acquisition vehicle has the financial capacity to close — which, in turn, requires the sponsor to have made the equity commitment available. A clause that lets the sponsor’s refusal to fund the equity commitment defeat the seller’s specific-performance right is a clause that is doing the opposite of what specific performance is supposed to do.
Second, the specific-performance clause is structured to be available only when the reverse termination fee is not invoked. Buyers’ counsel sometimes draft this in the form of a “remedies waterfall” — the seller can elect specific performance OR the RTF but not both, and the seller’s election has to be made within a tight window. The mechanics often favor the buyer in practice, because the buyer can tender the RTF before the seller has decided whether to seek specific performance.
Third, the financing provisions are drafted to give the buyer broad termination rights where the financing falls apart for reasons the buyer can characterize as outside its control. The “marketing period” language, the syndication-cooperation obligations, the conditions in the debt commitment letter — each of these is a place where the buyer’s failure to close can be framed as a financing failure rather than a buyer breach, which puts the seller in the RTF lane rather than the specific-performance lane.
What the seller should demand
The 2026 PE-buyer market is competitive on price but increasingly variable on closing certainty. Sellers should treat the remedies architecture as a price term. Three negotiation points matter most.
First, the specific-performance clause should be drafted to allow the seller to force the acquisition vehicle to call the equity commitment — and should give the seller standing to enforce the equity commitment directly against the sponsor as a third-party beneficiary. This last point is the one buyers’ counsel resist most strongly. A sponsor whose equity commitment can be enforced against it by the target’s stockholders is a sponsor that cannot walk by simply refusing to fund. The market has moved partially toward this construction over the last several years, and a 2026 seller has reasonable leverage to push the drafting.
Second, the remedies clause should be drafted so that specific performance and the reverse termination fee are available in the alternative, with the seller’s election made after the buyer’s breach, not before. The “seller may elect, in its sole discretion, to seek either the reverse termination fee or specific performance” construction is more seller-friendly than the “remedies are mutually exclusive and election shall be made within X business days of the breach event” construction.
Third, the financing-failure mechanics should be tightened so the buyer cannot manufacture financing failure as a path to the RTF lane. The “marketing period” should be capped. The syndication-cooperation obligations should be specific. The conditions in the debt commitment letter should be limited to specified objective triggers. Each of these is a separate fight, but each closes off a path by which the buyer can frame a willful walk as an unavoidable financing failure. The PE asymmetries in the surrounding documents matter for the same reason — the agreements interact, and a seller who has won the specific-performance fight in the merger agreement can still lose the practical battle if the equity commitment letter and the debt commitment letter are drafted around it.
The buyer-side defense
Buyers’ counsel push back on this architecture, and some of the pushback is reasonable. Specific performance against a sponsor that does not want to close produces a deal closed under duress, which is a deal that often does not produce value for either side. The RTF mechanism exists in part to give the buyer a clean exit when the deal has soured, and the cleanness has value to the buyer that is, in some sense, paid for by the size of the RTF.
The seller’s counter is that the RTF is sized to compensate for buyer-side controllable risk (financing issues, change in buyer’s strategic priorities, post-signing diligence findings) but not for the seller’s reputational and operational loss from a busted deal. A seller whose deal has fallen apart faces signaling costs in the M&A market that are not captured by the RTF. The specific-performance backstop is the seller’s leverage to ensure the buyer’s walk is genuinely costly enough that the buyer does not walk when the seller is willing and able to close.
The drafting that holds up
The merger agreements I have seen hold up against PE-buyer walks share three features. The specific-performance clause is explicit, unconditional on the equity commitment being made, and grants the seller standing to enforce the commitment directly. The remedies waterfall puts the election with the seller and after the breach. The financing provisions are tight, with limited buyer-side flexibility to extend or restructure committed financing without the seller’s consent. None of these features is a market standard; they are the product of negotiation by sellers’ counsel who knew what they were fighting for.
The 2026 PE-buyer landscape rewards sellers who know which drafting points matter. The specific-performance backstop is not a boilerplate clause that gets the same treatment in every deal — it is the difference, when the deal goes sideways, between the seller forcing a close at the price agreed and the seller taking the RTF and walking away from the value they thought they had locked in.
If you are a founder, controlling stockholder, or board member negotiating a sale to a financial sponsor in 2026, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
