A sell-side client called me in March about a strategic buyer who had just delivered a clean draft of the merger agreement. The price was strong, the closing conditions were tight, the financing was committed, and the antitrust covenant was — in his words — “just the standard one paragraph.” He wanted to know if he could sign by Friday.
I told him to slow down. The “standard one paragraph” he was pointing at was the buyer’s hell-or-high-water covenant, and it was no longer standard at all — and the divestiture cap buried inside it was where the actual economics now lived. The language committed the buyer to take any divestiture, accept any consent decree, and litigate any challenge that the DOJ or FTC might raise — with no cap on cost, no cap on scope, and no termination right tied to regulatory burden. In a 2018 deal that paragraph was boilerplate. In a 2026 deal it is a multi-hundred-million-dollar transfer of regulatory risk from the seller to the buyer, and it almost never sits naked anymore on either side.
The covenant has gone asymmetric. The drafting now lives in the cap, the materiality qualifiers, and the termination triggers — not in whether the buyer will “use best efforts.” If you are advising on a deal of any antitrust complexity in 2026 and you are still treating the hell-or-high-water language as a one-paragraph closing-conditions afterthought, you are missing the negotiation that actually controls the deal.
What the hell-or-high-water covenant used to mean and why it broke
The classic hell-or-high-water covenant — sometimes labeled “HOHW,” sometimes just “regulatory efforts” — emerged in the late 1990s as a seller-protective device. The seller had agreed to take the deal off the market for a months-long regulatory review period and wanted assurance that the buyer would not walk away mid-review citing the cost of divestitures. The drafting tradition was strong: an unconditional commitment by the buyer to take whatever action the antitrust agencies required, with no out, and a reverse termination fee that paid the seller real money if the deal failed for regulatory reasons.
That worked when the divestiture menu was reasonably predictable. The DOJ and FTC under both parties from roughly 2000 to 2020 followed an unwritten convention: divestiture packages targeted overlapping product lines, the affected revenue was usually a known fraction of the combined company, and the buyer’s lawyers could model the worst case at signing. A buyer signing an unconditional HOHW could price the regulatory exposure into the deal economics and move on.
The 2023 Merger Guidelines changed the price of that bet. The DOJ and FTC’s joint guidelines elevated concentration trends (Guidelines 7 and 8, on industries trending toward consolidation and serial acquirers), labor-market monopsony, and a more aggressive vertical-foreclosure presumption — and the practical effect on the negotiating table has been that buyers cannot reliably forecast what a divestiture package will demand. Add in the more aggressive HSR Second Request posture of the last several years — and the Item 4 documents trap that now catches sellers earlier in the process — the agencies’ willingness to litigate cases the prior regimes would have settled, and the rise of state attorneys general as a parallel front, and the buyer’s open-ended HOHW commitment now sits on top of risk the buyer’s lawyers cannot scope.
The drafting response has been to cap the commitment — quietly, and in language that reads as cooperative.
What the divestiture cap actually looks like in 2026 drafts
The covenant I am seeing in current drafts almost always has a divestiture cap, but the cap is rarely labeled as a cap. It hides in three places.
The first is the materiality qualifier in the obligation to divest. The classic HOHW language requires the buyer to divest “any and all” assets the agencies demand. The current standard reads “such assets as are required to obtain clearance, other than any divestiture that would be material to the combined company taken as a whole.” That qualifier — “material to the combined company” — is a cap. It is a soft cap, it is litigable, and it transfers the burden of proving materiality back onto the seller in a dispute, but it is a cap. A buyer that successfully invokes the materiality threshold walks away from the divestiture and, depending on the rest of the agreement, walks away from the deal.
The second place the cap hides is in the reverse termination fee. The fee used to be the seller’s compensation for a failed deal — a sticky number, often three to six percent of equity value, paid if the deal failed for regulatory reasons attributable to the buyer. In 2026 deals the reverse termination fee has split into an antitrust co-pay structure: a smaller fee for failure where the buyer used reasonable efforts and a larger fee for failure where the buyer refused to take an action it was contractually obligated to take. The split is invisible if you do not look for it. The smaller fee — in some deals as low as one-and-a-half to two percent of equity value, roughly half the headline tier — is now the buyer’s option price on walking away from a divestiture it does not want to make. If you are the seller and you have not modeled the smaller fee as the buyer’s actual financial exposure, you are mispricing the regulatory risk.
The third place is in the litigation obligation. The traditional HOHW language required the buyer to litigate the deal to a final non-appealable judgment, which meant years of litigation cost and risk. The current drafting trims that to “litigate through the trial court” or, more aggressively, to a buyer’s right to abandon litigation after a preliminary injunction against the deal — even if appeal is available. That carve-out is not theoretical. It interacts with the post-Crispo specific-performance landscape in 2026 PE deals, and it is the language that determines whether a Second Request that escalates to a federal court fight ends with the deal closed, the deal litigated, or the deal abandoned.
The seller’s drafting moves on the divestiture cap
If you represent the seller on a deal with meaningful antitrust risk, the first move is to reject the framing that the covenant is one paragraph. It is not. It is a negotiated allocation of three distinct risks, and each risk warrants its own paragraph.
On the divestiture cap, the seller’s move is to push the qualifier from “material to the combined company” toward a hard dollar threshold or a hard revenue threshold tied to the target. A cap stated as “divestitures that, in the aggregate, account for revenues exceeding fifteen percent of the target’s most recent fiscal-year revenue” gives the parties an objectively determinable line and removes the post-signing argument over what counts as “material to the combined company.” A buyer that resists a hard threshold is telling the seller that it wants flexibility to invoke the soft threshold on terms that are hard to challenge.
On the reverse termination fee, the seller’s move is to collapse the two-tier structure or, at minimum, to require that the smaller tier be available only on a specific factual showing rather than as a default. The standard seller draft pushes back to a single tier at four to five percent of equity value, paid on any regulatory-related termination not caused by the seller’s own breach. If the buyer insists on the two-tier structure, the seller should price the gap — the difference between the two tiers — as the buyer’s option premium and either widen the gap or trade other concessions against the carve-out.
On the litigation obligation, the seller’s move is to push the buyer back to a final-judgment-through-appeal commitment for any preliminary injunction the buyer believes is wrongly decided, and to require the buyer to pursue all reasonable settlement avenues with the agencies before either side declares the regulatory process exhausted. A buyer that resists the appeal commitment is telling the seller that it views the trial court ruling as a soft exit. The seller should know that.
What the divestiture cap means for the deal model
The combined effect of the three quiet caps is that the buyer’s regulatory commitment in a 2026 deal is materially weaker than the same paragraph would have meant in 2018. The seller is bearing more regulatory risk, and the seller’s bankers’ deal model — if it does not adjust for the asymmetry — will overstate the certainty of close.
The drafting move that follows from that recognition is to separate the regulatory negotiation from the price negotiation. Sellers who try to negotiate the divestiture cap during the same week they are arguing about working capital and the indemnification cap are usually losing the antitrust paragraph because it sits next to the closing conditions in the agreement and looks like a mechanical clean-up issue. It is not. It is the second-largest economic provision in the agreement after the purchase price, and the seller’s team needs to staff it that way.
The other practical move is to demand that the buyer’s antitrust counsel produce, before signing, a written assessment of the likely divestiture package and the cost of executing it. Buyers resist this on grounds of work-product protection. Sellers should resist that resistance on grounds that the buyer has the information asymmetry. A buyer that will sign a HOHW with no cap can produce the assessment; a buyer that demands a soft cap should be willing to share the analysis that drove the cap. The negotiation rarely reaches the assessment, but the demand sharpens the rest of the conversation.
The honest summary on the hell-or-high-water divestiture cap
Hell-or-high-water has not disappeared in 2026. It has gone soft, and the softness is hidden in three drafting moves that do not announce themselves as caps. The seller who treats the regulatory covenant as a one-paragraph standard provision is missing where the deal economics now actually live.
The right way to negotiate the covenant is to treat the divestiture qualifier, the reverse termination fee structure, and the litigation obligation as three separate price terms, each with its own model, its own walk-away point, and its own trade. The buyer’s draft will look cooperative. The economics will read differently. M&A practice in 2026 is increasingly an exercise in spotting the asymmetries the standard language has absorbed.
If you are a seller working a deal with real antitrust complexity and want a second read on whether the regulatory covenant in your draft actually delivers what your banker is telling you it delivers, 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.
