Why the Material Adverse Change (MAC) Clause Is Critical
If a serious deterioration occurs at the target company between signing an acquisition agreement and closing, the MAC clause determines what the buyer can do about it.
The function of the MAC clause
A Material Adverse Change clause gives the buyer the right to walk away from the deal if a significantly adverse change occurs in the target company's business, financial condition, or operations between signing and closing.
This clause aims to protect the buyer from major unforeseen risks that could emerge after signing, but the definition of "material adverse change" is usually open to broad dispute.
The distinction between general market conditions and company-specific issues
Most MAC clauses exclude broad market conditions such as a general economic downturn, sector decline, or macroeconomic events; these exclusions are usually called "MAC carve-outs."
Because of these carve-outs, a MAC claim generally has to show that the adverse development is company-specific and disproportionately severe to succeed.
How courts tend to interpret the MAC clause
In most jurisdictions, courts have historically rarely upheld a buyer's attempt to walk away from a deal on a MAC claim; the burden of proof typically falls on the buyer, and the bar has been set quite high.
This trend means the MAC clause functions in practice less as an exit tool and more as leverage that pushes the parties toward renegotiating before closing.
Clause design after pandemics and major external shocks
Following major external shocks like a global pandemic, MAC clauses are now typically drafted in more detail to explicitly address specific scenarios such as a pandemic, natural disaster, or government intervention.
This detailed approach aims to clarify in advance which rights the parties can exercise under which scenarios, rather than relying on the previously ambiguous general language.
Practical protection strategies for the buyer
Since using the MAC clause through litigation is difficult, buyers typically negotiate specific financial thresholds (such as a defined revenue decline percentage) or specific event-based termination rights as an additional layer of protection.
These specific thresholds provide a far more objective and enforceable termination criterion than general MAC language.
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Learn moreFrequently asked questions
Is a MAC clause always present in deals?
It appears as a standard clause in most mid-size and large deals, though its scope and carve-outs vary widely from deal to deal.
Is it easy to walk away from a deal on a MAC claim?
No; case law generally sets a high evidentiary bar, which is why buyers typically reinforce this clause with specific thresholds.
Which party does the MAC clause favor?
It's usually designed in the buyer's favor, but the seller side tries to limit its effect in negotiation by broadening the scope of the carve-outs.
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