September 19, 2022

M&A Agreements: “Hell or High-Water” Clauses

The efforts required to obtain antitrust or other regulatory approvals for a deal are often among the most heavily negotiated aspects of the merger agreement. In some situations where obtaining those approvals are a big concern, the seller may sometimes attempt to enhance deal certainty by negotiating for a so-called “hell or high-water” clause, obligating the buyer to take any and all actions necessary to obtain required approvals. This Quinn Emanuel memo takes a look at the issues associated with these clauses and how Delaware courts have looked at them in recent cases. Here’s an excerpt from the intro:

M&A “hell or high water” provisions mandate effort and require actions in furtherance of obtaining regulatory approvals, such as compliance with government demands for information, support for a particular strategy, or participation in litigation over regulatory challenges. But effort does not guarantee a desired outcome—either regulatory approval or a closing.

In disputes arising from the failure to obtain regulatory or other approvals, courts do not automatically conclude that a party failed to take “all necessary” steps. Rather, courts analogize to other “efforts” covenants that govern the parties’ pre-closing obligations. These disputes generally require a fact-intensive analysis, which means that they can be difficult to resolve without a trial.

As a result, disputes will continue to arise over antitrust and regulatory efforts clauses and affect the parties’ rights and remedies, including their ability to close or to seek damages for failed deals. As federal antitrust regulators engage in more stringent review, participants may see an uptick in lawsuits over these provisions.

The memo says that recent Delaware decisions suggest that a breach of a hell-or-high-water obligation won’t necessarily result in liability because that breach may be found to be either immaterial or not the “but for” cause of a merger’s failure. Furthermore, even if a court finds a breach, problems associated with establishing causation, contractual provisions limiting liability to “willful misconduct” or a court’s reluctance to sock a buyer with a huge damage judgment may limit a seller’s remedies for that breach.

John Jenkins