DealLawyers.com Blog

In the wake of the Delaware Supreme Court decision in Thompson Street Capital Partners, IV v. Sonova (Del. Sup.; 4/25) that applied the equitable doctrine “common law abhors a forfeiture” to noncompliance with a merger agreement’s notice of claims requirement, a number of drafting changes have been proposed. One such suggestion — by Glenn West in Business Law Today — is that the survival clause state that compliance with the notice provisions is a material part of the bargained-for exchange, combined with “time is of the essence” language. This led Glenn and Mitu Gulati to do a deep dive on time-is-of-the-essence clauses in M&A agreements, which they wrote about in the winter edition of The Business Lawyer.

They were surprised by the application of this equitable doctrine in the context of a seller’s indemnification obligation in Thompson Street Capital. They review the history of the doctrine, which resulted from the court’s reluctance to condition the continued grant of possessory land interests on time-based requirements. Time-is-of-the-essence clauses arose in the context of those land-based relationships. They wondered, with the abhorrence of forfeiture being applied to sophisticated M&A agreements, might a time-is-of-the-essence provision work here too? They started with a survey of the inclusion of this language in M&A agreements, and the results surprised them — and everyone else.

We expected to see few or no time-is-of-the-essence clauses in M&A agreements. Instead, between 2010 and 2025, they appeared in roughly 20 percent of the approximately 4,200 publicly available private company M&A agreements our research assistants examined. Except for a handful, the inclusion of these provisions predates Thompson Street Capital. And when these provisions are used, we found that they typically are more all-encompassing regarding the various deadlines found in a private company acquisition agreement than may have been truly intended or necessary.

They had questions about why these provisions were included in these deals and not the other 80%, and there wasn’t already available data to answer those questions. So they conducted interviews with practitioners, including some who drafted the agreements that contained the clauses.

The response we received during our interviews was that there was either no or only limited familiarity with or understanding of the time-is-of-the-essence provision in the M&A bar—at least prior to the Thompson Street Capital decision. And that 20 percent number surprised almost every lawyer we asked about it, including those who had included a time-is-of-the-essence clause in their own documents.

What did the practitioners they chatted with say about Glenn’s proposed drafting fix? Many were in the early stages of considering how to respond to Thompson Street Capital and were open to the suggestion, but worried about “the law of unintended consequences.” To that end, Glenn suggests a “targeted approach” and provides a possible “boilerplate” clause for consideration. It’s worth your time to read the article in full and consider the suggested “Materiality of Conditions” provision.

– Meredith Ervine