Series 79 practice questionmediumMaterial Adverse Change Clauses
A merger agreement’s Material Adverse Change (MAC) clause contains a “disproportionate effect” carve-out for industry-wide downturns. In a court dispute, which scenario could allow the buyer to invoke the MAC clause?
- AThe entire industry faces a mild recession.
- BThe target’s performance declines in line with its industry peers.
- CMacro-economic factors affect all firms equally.
- DThe target suffers a downturn more severe than its peers due to unique issues.✓ Correct answer
Explanation
Why D — The target suffers a downturn more severe than its peers due to unique issues.
If the target is disproportionately affected compared to peers, the MAC clause may apply. Trap answers ignore the carve-out’s focus on relative performance, which is critical for legal interpretation.
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