Material Adverse Effect (“MAE”) Clause in M&A Transactions

Linkedin Post

I came across the following definition of “MAE” from the American Bar Association’s Canadian Private Target M&A Deal Point Study:

“MAE” means any result, occurrence, fact, change, event, or effect that has, or could reasonably be expected to have, a materially adverse effect on the business, assets, liabilities, capitalization, condition (financial or other), results of operations, or prospects of the target or its ability to consummate the Transaction.

This definition is a helpful reference when drafting an MAE clause, particularly in well-established legal systems. However, adopting it verbatim in Malaysia may be overly complicated, given the limited case law on MAE clauses in the Malaysian M&A context.

One potential approach is to narrow the scope of the MAE clause to exclude issues that can be resolved within a short time frame (e.g., 21 days)—a so-called “MAE carve-out.” This carve-out ensures that minor issues, which can be resolved quickly, are not used to trigger an MAE, making the clause less prone to being invoked over trivial disputes.

Linkedin Post
Earn-out: A postponed dispute?

An earn-out is often the solution when a buyer and seller cannot agree on price. The seller believes the business is worth more than what the buyer is willing to pay upfront. So, the parties resolve the issue by deferring the portion of the price they cannot agree on, with …

Linkedin Post
The disclosure letter: Why founders selling their companies should not treat it as an afterthought

When founders sell their companies, the scope of legal work usually focuses on the share sale and purchase agreement (SPA). The disclosure letter is sometimes treated as secondary to the SPA but it should not have been the case. The disclosure letter sets out the exceptions to the sellers’ representations …

Linkedin Post
Third-party consents in a share sale: What sellers should check before negotiating

When a company is sold, due diligence is usually conducted by the buyer, not the seller. That means the consents required from regulators, other shareholders, financiers or IP licensors to complete the sale are often only discovered when the buyer’s lawyers identify them during legal due diligence. By then, the …