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← Series 79: M&A, Tender Offers & Restructuring
Series 79 practice questionmediumMaterial Adverse Change Clauses

A material adverse change (MAC) clause in an acquisition agreement is typically used as:

  1. AA mechanism to automatically adjust the purchase price based on changes in the target's stock price
  2. BAn obligation for the buyer to increase the offer price if the target outperforms expectations
  3. CA requirement for the target to maintain a minimum stock price until closing
  4. DA closing condition that allows the buyer to walk away if the target experiences a materially adverse change in its business or financial condition between signing and closing✓ Correct answer
Explanation

Why D — A closing condition that allows the buyer to walk away if the target experiences a materially adverse change in its business or financial condition between signing and closing

A MAC clause (also called a material adverse effect or MAE clause) is a closing condition that permits the buyer to terminate the agreement if the target suffers a material adverse change in its business, operations, financial condition, or results of operations between signing and closing. The definition of what constitutes a MAC is heavily negotiated, with sellers seeking broad carve-outs for industry-wide events, general economic conditions, and changes in law. Delaware courts have set a high bar for invoking MAC clauses, requiring a durationally significant impact on the target's earnings.

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