M&A: Material adverse change (MAC)

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MAC clauses are contractual provisions which allow a buyer to walk away from a deal between signing and completion of the SPA upon the occurrence of material events which adversely affect the target company or business.

MAC clauses are intended to provide for unforeseen circumstances which have an adverse effect on the target.

Whether to include a MAC clause in a sale and purchase agreement (SPA) is a matter of negotiation.

From the buyer’s perspective, having a wide definition of what constitutes MAC is beneficial whereas the seller would want to limit the MAC clause to specific events or have wide exceptions to MAC events.
MAC clauses may provide for events such as major disruption to supply chain, loss of long-term customers or major customers or a litigation against the target.

Points to consider for MAC clauses:

1. To provide certainty as to what constitutes MAC, specify a quantitative level of financial or operational impact which an event may have on the target in order for the event to constitute MAC.

2. A SPA may provide for a MAC clause as a condition precedent or warranty.

If the SPA provides for a MAC clause as a condition precedent and a MAC happens during the conditional period (before completion), the condition precedent is not fulfilled. The buyer is then entitled to walk away from the deal.

Alternatively, the SPA may provide for a MAC clause by including a warranty that since a specified date (usually the date of the last audited accounts of the target company), there has not been any material adverse change in the business, financial position or profits of the target. If the warranty is not true when repeated at completion, the buyer may walk away from the deal.

3. If the buyer relies on third party financing for the deal and the financing is subject to a MAC condition, that condition should be reflected in the terms of the SPA.


This post was first posted on Linkedin on 3 February 2023.

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