Series 79 practice questionmediumMaterial Adverse Change Clauses
Which of the following events would most commonly be carved out from the definition of a material adverse change in a typical acquisition agreement?
- AA product recall specific to the target company
- BFraud by the target's senior management
- CLoss of the target's largest customer due to quality issues
- DGeneral changes in economic conditions or conditions affecting the target's industry broadly✓ Correct answer
Explanation
Why D — General changes in economic conditions or conditions affecting the target's industry broadly
MAC definitions typically include carve-outs for events that affect the broader economy or the target's industry as a whole, rather than the target specifically. Common carve-outs include changes in general economic or market conditions, changes in the target's industry, changes in law or accounting standards, natural disasters, and acts of war or terrorism. The rationale is that the buyer should bear the risk of systemic or industry-wide changes, while the seller bears the risk of company-specific adverse developments.
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