USA Law and Practice Contributed by: Vijay Sekhon, Brien Wassner, John Godfrey and Justin Macke, Sidley Austin LLP
6.5 “Hell or High Water” Undertakings In US private equity transactions, “hell or high water” (HOHW) undertakings – where the buyer commits to take all actions necessary to secure regulatory approv - al, including divestitures if required – are occasionally accepted, but typically reserved for highly competi - tive deals where regulatory risk is known and limit - ed. PE-backed buyers are generally more reluctant to offer unrestricted HOHW commitments, as they are mindful of precedent risk, fund-level constraints and downside exposure. Instead, private equity buy - ers commonly negotiate “reasonable best efforts”, often coupled with caps on required remedies (eg, no material divestitures or business conduct restric - tions). However, where regulatory approval is a mate - rial risk, or in competitive deals, sellers may demand stronger commitments, and private equity buyers may offer a modified HOHW covenant sometimes limited by materiality thresholds and/or geographic/product scope. HOHW undertakings are less common in CFIUS or foreign investment reviews due to the discretionary nature of such reviews and the sensitivity of divestiture requirements; however, certain sensitive transactions may require mitigation measures. Sponsors generally negotiate “reasonable best efforts” obligations in that context with no or limited requirement to agree to miti - gation measures. The EU Foreign Subsidies Regulation (FSR) is becom - ing relevant in cross-border deals involving US spon - sors acquiring European assets with state-backed capital. While HOHW commitments are not common in this context, deal timelines and co-operation cov - enants are increasingly affected. 6.6 Break Fees Reverse break-up fees are fairly standard in PE-led transactions, particularly where debt financing is involved. These fees are typically payable if the buyer fails to close due to financing failure, regulatory block or material uncured breach. Reverse break-up fees typically range from 5% to 7% of equity value for pub - lic company transactions or enterprise value for pri - vate company transactions, depending on perceived risk and deal size. In some cases, a tiered structure is used (eg, lower fee for financing failure, higher fee for
age occurs, the buyer is entitled to reimbursement (and/or post-closing true-up), in some cases with interest from the leakage date to settlement. 6.3 Dispute Resolution for Consideration Structures Disputes around purchase price mechanics, especial - ly in closing accounts deals, are typically referred to an independent accountant or expert. These clauses are well-established and offer a streamlined path to resolution without triggering broader legal proceed - ings. Even in locked-box deals, expert determination provisions may be included for leakage or accounting- related disputes. Legal disputes over interpretation (eg, fraud, breach of covenant) are typically carved out from the expert’s scope and resolved via court process (or on some occasions arbitration). 6.4 Conditionality in Acquisition Documentation Outside regulatory approvals and customary closing conditions (eg, bring-down of representations and covenants, no material adverse effect, etc), private equity acquisition agreements typically include mini - mal conditionality. Financing Conditions PE buyers are expected to provide committed financ - ing at signing and do not benefit from financing-outs. Sellers require equity commitment letters and, where applicable, debt commitment papers (or in limited cir - cumstances highly confident letters). Third-Party Consents Buyers typically assume the risk of obtaining third- party consents unless certain contracts are critical to the business. Shareholder approval is more relevant in public or minority investment contexts. MAE Clauses Material adverse effect conditions are customary but tightly negotiated with many customary exceptions. Delaware law also sets a high bar for proving an MAE, and courts have been reluctant to allow buyers to walk absent a durationally significant decline in the busi - ness.
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