“Hell or High Water” Clauses in M&A: Delaware Gives Guidance

Overview and Key Practical Takeaways 

“Hell or High Water” clauses are a type of effort undertaking unique to M&A. Most often tied to obtaining competition approval, they typically involve more onerous obligations than other efforts undertakings common in M&A, such as “commercially reasonable efforts”. They are also typically highly negotiated and sometimes contentious. 

Judicial guidance regarding their application is relatively infrequent and therefore valuable. Accordingly, the March 2025 ruling of the Delaware Court of Chancery in Desktop Metal, Inc. v. Nano Dimension Ltd.^[1] discussing “Hell or High Water” clauses is notable and worth further consideration, including in the context of Canadian M&A. 

Our key practical takeaways include: 

• The court characterized Hell or High Water clauses as the “strongest possible commitment a party can make in a merger agreement”. 
• The Hell or High Water clause at issue, being almost 700 words long, demonstrates how highly negotiated, detailed and transaction-specific such clauses can be, and included a detailed carve-out and over ten exceptions to the carve out. The court’s analysis scrutinized conduct that can fall afoul of a Hell or High Water clause, such as a “pattern of delay and backtracking”.
• Although a Delaware decision, the ruling echoes Canadian M&A caselaw in several respects. First, Canadian courts generally seek to give distinct meaning to bespoke clauses, including in light of a transaction’s factual matrix. Second, Canadian courts have considered questions of good faith in connection with interim period covenants, including evidence of “buyer’s remorse”.
• The potential use of a Hell or High Water clause should be carefully weighed in light of all relevant circumstances. As an alternative, whether because of uncertainty in the ability to secure regulatory approvals under reasonable conditions or for other reasons, M&A parties can consider a reverse termination fee.

Our detailed insights follow. For further discussion of Hell or High Water clauses, see Fasken’s Private M&A in Canada: Transactions and Litigation (LexisNexis, 2024)^[2]. For more Fasken M&A thought leadership, visit our Capital Markets and M&A Knowledge Centre and subscribe.

The Dispute in Brief

Desktop Metal, Inc. arose from the buyer’s refusal to close and the target’s claim for specific performance. 

The buyer is a NASDAQ-listed Israeli company. The target manufactures industrial-use 3D printers that produce specialized components for missile defence and nuclear capabilities. This being the case, the parties anticipated approval by the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews mergers that may result in foreign control of U.S. a business on national security grounds, would be necessary and would likely require the parties to enter into a “national security agreement” (NSA) with the U.S. government. 

The target desired certainty and therefore negotiated for a “hell or high water” clause requiring the buyer to “take all actions necessary” to obtain CFIUS approval. Because the target had concerns about having sufficient cash to get to closing, the target also obtained the buyer’s agreement to use “reasonable best efforts” to close as soon as reasonably possible. 

The parties’ efforts towards obtaining CFIUS approval initially went well. However, after a change in control of the buyer, progress stalled. The buyer’s second largest shareholder, who vocally opposed the transaction, launched a proxy contest following the board’s approval of the deal, and vowed to unwind it. Following the shareholder’s successful proxy contest, and the board’s reconstitution, the buyer’s work on the NSA negotiations, which were well-underway, slowed considerably, including seeking to re-trade on previously agreed points. 

The “Hell or High Water” Clause

The pertinent sections of the Hell or High Water clause provided: 

[Buyer shall take] all action necessary to receive CFIUS Approval so as to enable the Closing, including providing all such assurances as may be necessary, requested or imposed by CFIUS, including, without limitation, entering into a mitigation agreement, letter of assurance, national security agreement, proxy agreement, trust agreement or other similar arrangement or agreement, in relation to the business or assets of the [target]… (emphasis added)

The clause included a carve-out (the Carve-Out) if CFIUS required the buyer to relinquish “control” over 10% of the target, measured by revenue. This guarded against CFIUS requiring the buyer to cede control of a portion of the target, e.g., a ring-fenced subsidiary with CFIUS-appointed directors. 

However, the parties also agreed to narrow the Carve-Out with numerous potential CFIUS-imposed mitigation remedies that would not trigger the 10% carve-out (the Carve-Out Exceptions), including supply assurances, terms for U.S. government contracts, and monitoring and audit rights, among others. The Carve-Out Exceptions were based on mitigation remedies previously imposed on other mergers by CFIUS.

The Court of Chancery’s Ruling

Regarding Hell or High Water clauses generally, the court noted: 

Of the range of concessions to a reasonable-best-efforts provision that a seller may secure from a buyer, hell-or-high-water provisions are the most “extreme.” They are the strongest possible commitment a party can make in a merger agreement with respect to regulatory approval. They are, therefore, rare.

The court did not find that this standard was satisfied by the buyer’s negotiation of the NSA. Rather, the court described a “pattern of delay and backtracking.” Among the conduct highlighted by the court was the buyer (1) taking extended time to comment on revised drafts, including, in one instance, 38 days, (2) reverting back to text CFIUS had already rejected, (3) raising significant concerns with provisions the buyer had previously not objected to, (4) not addressing proposed compromises offered by CFIUS, and (5) not taking CFIUS up on its invitations to discuss concerns raised by the buyer. 

Regarding the Carve-Out and Carve-Out Exceptions, the court stated that, accepting the buyer’s “broad interpretation” of “control” it was possible the Carve-Out was triggered by two terms of the NSA required by CFIUS, although the buyer’s burden to show the Carve-Out applied was likely not met. However, even if the Carve-Out was applicable, the court held such restrictions were caught by the Carve-Out Exceptions. The court also held the buyer’s delay in obtaining CFIUS approval breached its obligation to use reasonable best efforts to close the transaction as soon as reasonably possible.^[3]

Key Practical Takeaways for Canadian M&A

The equivalent to CFIUS approval in Canada is approval under the Investment Canada Act. However, when used in M&A in Canada, Hell or High Water clauses are typically employed in connection with Competition Act clearance. They are most often used in the context of transactions involving entities operating in heavily regulated industries such as telecommunications and transport^[4], and can sometimes be an essential condition to persuade the target’s board of directors to accept a transaction or favor one proposal over others (i.e. one with a higher price but greater regulatory risk). Hell or High Water clauses in Canada are generally principle-based, with the buyer agreeing to take all necessary measures to obtain the regulatory approvals subject to an exception for divestitures that would be material and adverse to the business of the buyer or target.

Although a Delaware decision, Desktop Metal, Inc. illustrates multiple noteworthy aspects of Hell or High Water clauses that remain relevant in the Canadian context.

• Hell or High Water clauses typically involve a “heightened commitment” by the buyer as compared to other common efforts undertakings in M&A. The court characterized them as the “strongest possible commitment a party can make in a merger agreement…”
• Hell or High Water clauses can be highly negotiated, detailed, and transaction-specific. In this case, the clause was almost 700 words long, and is particularly noteworthy for both its Carve-Out and the ten-plus Carve-Out Exceptions based on mitigation remedies previously imposed on other mergers by CFIUS. Where a performance breach is alleged, the specific wording of the clause will likely be heavily scrutinized by the court.
• The ruling provides examples of the type of conduct that could fall afoul of a Hell or High Water undertaking. The court suggested the buyer’s “pattern of delay and backtracking” did not reflect well. The ruling also warns against “moving the goalposts” and making negotiation demands that depart from previously accepted terms.
• The ruling was impacted by considerations related to the buyer’s apparent “change of heart”. From the outset, the court stated the buyer faced an “uphill battle in convincing anyone that it did everything it could, come hell or high water,” to obtain CFIUS approval following the reconstitution of the buyer’s board. The court noted that, “having won their positions on [the] promise to scuttle the Desktop deal, the [new] board members seemed intent on making good on that promise by obstructing CFIUS approval.”

We are unaware of any caselaw in Canada interpreting a Hell or High Water clause in an M&A dispute.^[5] However, numerous Canadian courts have addressed the meaning of efforts undertakings such as “best efforts” and “commercially reasonable efforts” such that these terms have relatively well-defined meaning.^[6] Canadian courts have also given distinct meaning to hybrid efforts formulations such as “commercially reasonable best efforts”, including in the context of M&A.^[7] We would therefore generally expect a Canadian court to give meaning to a Hell or High Water clause different (and presumably more onerous) than given to a differently-worded efforts undertaking such as “commercially reasonable efforts”. That said, the exact wording of the clause, as well as the deal’s particular factual matrix, would likely be the most relevant factors.

We would also generally expect a Canadian court to consider evidence regarding a potential change in motivation by an M&A party in connection with the performance of a Hell or High Water clause, such as that evidenced by the buyer in Desktop Metal, Inc. Numerous Canadian rulings made in M&A disputes have featured questions of good faith, including evidence of “buyer’s remorse”.^[8] Once again, however, it is difficult to generalize and precedent confirms the court’s analysis is generally heavily situation-specific.

Additional Considerations

The potential use of a Hell or High Water clause should be carefully considered in light of all relevant circumstances, particularly where the prospects of obtaining the necessary approvals is uncertain, whether due to enhanced demands for remedies by regulators that may be impractical or impossible to satisfy or the risk of a full stop refusal. Uncertainty can run especially high in the context of transactions subject to a public interest review by elected officials who may add political considerations to the mix.

As an alternative to a Hell or High Water clause, whether because of uncertainty in the ability to secure regulatory approvals under reasonable conditions or for other reasons, parties may resort to a reverse termination fee payable by the buyer to the target if the regulatory approvals are not obtained within a specified time period. Care should be taken in drafting such clauses, however, as illustrated by a recent M&A dispute in Alberta. In a 2025 ruling,^[9] the Alberta Court of Appeal relied on the strict wording of the agreement over conflicting factual evidence regarding the clause’s intent to overturn the trial court’s ruling ordering payment of a reverse termination fee following the failure to obtain U.S. antitrust and Canadian competition approval.