January 27, 2025
Force Majeure Clauses: Handling Unforeseeable Events in M&A

Sometimes, a single unexpected storm can upend the entire course of a deal. Imagine you’ve spent months negotiating the perfect acquisition, only for a sudden disaster or a global pandemic to derail everything at the last moment. Interested in learning how to protect your merger or acquisition from such catastrophic disruptions? Read on to discover how Force Majeure clauses can offer a critical safety net in M&A transactions, helping both buyers and sellers manage the risks of unforeseeable events.
What Is Force Majeure in M&A?
Force Majeure, often referred to as an “act of God” clause, is designed to shield parties from liability when extraordinary circumstances make their contractual obligations impossible—or impractical—to fulfill. In the realm of mergers and acquisitions (M&A), this mechanism serves as a powerful tool for small business owners looking to safeguard their deal against disruptive forces beyond anyone’s control.
While Force Majeure clauses have been around for a long time, the events of recent years—from large-scale natural disasters to worldwide public health crises—have placed a renewed spotlight on their importance. Sellers often want assurance that they won’t be penalized if they can’t deliver certain operational targets during a crisis, while buyers need clarity that they can pause or modify obligations if an extreme event shakes the business they’re acquiring.
Quick Tip: Think of a Force Majeure clause as an emergency parachute. You hope you never need it, but if catastrophe strikes, you’ll be glad it’s there.
Why Force Majeure Clauses Matter
A well-drafted Force Majeure provision can:
Help sustain the deal’s momentum when external events threaten delays.
Protect both parties from legal disputes over non-performance or late performance.
Clarify the obligations of each party during, and shortly after, extraordinary events.
Provide a structured process for renegotiating deadlines or payment schedules.
Additionally, Force Majeure provisions sometimes grant either party the right to terminate the agreement if the disruptive circumstance persists for a specific duration. This protects small business owners from being indefinitely bound to a deal that can’t realistically proceed.
Identifying and Defining Unforeseeable Events
To make your Force Majeure clause truly effective, you need to define the types of catastrophic events that could trigger it. Setting these parameters too narrowly may leave you vulnerable to unique disasters—while making them too broad may open a loophole big enough to drive a truck through.
Standard Force Majeure Events
While every industry and business has unique concerns, common Force Majeure triggers include:
Natural disasters (e.g., hurricanes, earthquakes, floods, wildfires)
Armed conflicts, terrorism, or political unrest
Government actions (e.g., embargos, legislation changes, lockdown orders)
Pandemics, epidemics, and public health emergencies
Labor strikes or widespread industrial actions
Major supply chain disruptions
What you list will depend on your specific situation. For instance, if your small business relies heavily on global shipping, you might emphasize port closures or shipping disruptions in the clause. On the other hand, sellers of brick-and-mortar establishments might be more concerned about local weather events or regional state-of-emergency declarations.
Quick Tip: Use past experiences and known risk factors to guide your list. You can also study industry norms or consult industry counsel to ensure your Force Majeure events match common practice.
Crafting a Comprehensive Definition
One size rarely fits all in M&A. That’s especially true when defining Force Majeure events. Here’s what a typical definition might include:
Verbiage signaling unpredictability: Phrases like “beyond the reasonable control” or “not reasonably foreseeable” make it clear that typical commercial hurdles won’t qualify.
Non-exhaustive lists: Many clauses start with a phrase like “including without limitation” before naming specific events. This leaves room for genuinely unprecedented happenings that don’t appear in your original list.
Exclusions: Certain events might be excluded from Force Majeure coverage if they’re considered natural business risks. For example, routine market fluctuations or seasonal staffing shortages often don’t count as Force Majeure.
Below is a simplified example of how you might approach event definitions:
Event Category | Examples | ||
---|---|---|---|
Natural Disasters | Floods, hurricanes, earthquakes, wildfires | ||
Man-Made Crises | War, terrorism, civil unrest, riots | ||
Government/Administrative Actions | Lockdowns, new regulations, import/export prohibitions | ||
Health Emergencies | Pandemics, epidemics, public health directives (e.g., shelter-in-place) | ||
Infrastructure Failures | Widespread power outages, major transportation disruptions |
Quick Tip: Thoroughly defining these events can help avoid confusion. If your contract mentions “pandemics,” consider specifying whether it includes similar emergencies like localized disease outbreaks.
Drafting Effective Force Majeure Clauses
A Force Majeure clause is more than a mere list of nightmare scenarios. You’ll also need to detail what happens if those scenarios come to life—particularly in the context of M&A milestones like closing dates, price adjustments, or integration plans.
Force Majeure Activations and Conditions
When can a party invoke Force Majeure? Typically, it’s when one or more events specified in the clause directly prevent that party from performing its contractual duties. But the devil is in the details. To minimize misunderstandings, consider specifying:
The threshold for “impossibility” or “impracticability.”
Whether partial performance triggers the clause or if it requires a complete halt in operations.
The contractual obligations that may be paused, such as delivering financial statements, meeting certain operational targets, or adhering to a strict integration timeline.
In M&A, especially for small and medium-sized transactions, a Force Majeure event might allow:
A buyer to postpone the closing date while the acquired company recovers from the disruption.
A seller to request additional time to fulfill closing conditions, such as finalizing essential legal documents.
A temporary suspension of representations and warranties tied to business performance if an extraordinary event significantly skews financial results.
Quick Tip: While buyers generally favor flexible triggers that protect their new investment, sellers might push for narrower triggers to ensure that short-term shocks don’t become indefinite delays.
Notice Requirements and Mitigation Efforts
A Force Majeure clause can quickly unravel if parties argue over whether they were properly notified about an event. To avoid ambiguity, outline notification procedures:
Timing: How soon must a party inform the other once they become aware of a Force Majeure event?
Format: Should the notification be in writing (physical or email), or is verbal notice enough followed by written confirmation?
Contents: What key details should the notice include, such as the nature of the event, expected duration, and any immediate steps being taken?
Alongside notice requirements, many Force Majeure clauses include a duty to mitigate. This means the party invoking the clause must do everything reasonably possible to reduce the event’s impact and resume normal performance as soon as feasible. For example, if a logistic channel is disrupted, the business should attempt an alternative route rather than simply accepting months of shipping delays.
Quick Tip: Encourage collaboration. A well-structured clause can promote transparency, ensuring both buyer and seller work together to keep the deal on track.
Enforcing and Negotiating Force Majeure Terms
Even the best-prepared small business owners may find Force Majeure clauses challenging to enforce if the provisions aren’t negotiated and documented with care. Clear communication, diligent record-keeping, and practical negotiation tactics can help you avoid disputes or handle them gracefully if they arise.
Protecting Your Interests
Think of Force Majeure as a safety mechanism that only works if you set it up correctly:
Ensure contract clarity: Avoid vague language, especially around what’s covered and the exact performance obligations that can be suspended.
Align Force Majeure with other contract terms: Provisions like indemnities, liability caps, and termination rights often intersect with Force Majeure clauses. Make sure the entire contract uses consistent definitions and timeframes.
Seek specialized advice: An M&A deal may have unique triggers or obligations not found in standard commercial contracts. An experienced M&A attorney familiar with Force Majeure can tailor the clause to your industry and risk profile.
Once the clause is in place, document everything. If a Force Majeure event occurs, keep records of every step, from the initial trigger and how it impacted your operations to your attempts at mitigation. Thorough documentation is often your best defense if the other side challenges whether the event truly qualifies.
Quick Tip: When in doubt, over-communicate. Being transparent about your situation—and how you’re working to resolve it—can bolster goodwill and reduce the likelihood of litigation.
Dispute Resolution and Next Steps
Force Majeure disputes in M&A typically center on whether:
The event genuinely falls under the contract’s Force Majeure definition.
A party took reasonable steps to mitigate the disruption.
Reinstating the deal terms—or canceling parts of them—is possible after the event ends.
Because these questions can be subjective, it’s wise to include an agreed-upon process for resolving Force Majeure disagreements. Common mechanisms include:
Mediation: A neutral mediator helps parties find a mutually acceptable solution.
Arbitration: A more formal process where an independently appointed arbitrator delivers a binding decision.
Litigation: Usually a last resort, given the cost and time, but sometimes unavoidable if neither mediation nor arbitration suffices.
In some cases, you can modify your standard dispute resolution clause to fast-track Force Majeure conflicts, especially if timeliness is critical. For instance, if you’re halfway through due diligence on a sale and a Force Majeure event halts everything, you won’t want to wait years for a courtroom decision.
Summary
When properly drafted, Force Majeure clauses in M&A agreements can be a lifesaver for small business owners facing the unknown. Keep in mind:
Define Force Majeure triggers: Carefully list events like natural disasters, pandemics, or government actions, and consider expanding to cover unforeseen crises specific to your industry.
Clarify performance obligations: Decide what aspects of your M&A deal should be paused or renegotiated if a Force Majeure event strikes.
Detail notice and mitigation steps: In many deals, timely communication and proof of reasonable attempts to minimize impact can be a deciding factor in dispute resolution.
Integrate with other contract elements: Make sure your Force Majeure clause aligns with termination rights, liability limitations, and any other relevant provisions in the purchase agreement.
Plan for disputes: Specify how you’ll handle Force Majeure disagreements, from mediation and arbitration to potential litigation. Being proactive can save substantial time, money, and stress.
Next Steps
Wondering how a Force Majeure clause might fit into your unique M&A scenario? Every acquisition or merger involves different vulnerabilities, timelines, and compliance obligations. If you’re trying to protect your deal from unforeseeable events:
Consult an M&A attorney who has experience with Force Majeure clauses.
Review your current operational risks to tailor your Force Majeure definition effectively.
Align your Force Majeure clause with related provisions, including warranties, indemnities, and termination rights.
Keep communication lines open with the other party so that if disaster strikes, you can act swiftly, collaboratively, and with minimal disruption.
When it comes to mergers and acquisitions, peace of mind is priceless. A robust Force Majeure clause can help preserve that sense of security if or when the unexpected happens. Make sure you’re prepared for the unforeseeable so the rest of your deal can flourish under any circumstances.
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