COVID-19: Material Adverse Change In A Canadian M&A Context

The unprecedented suddenness and uncertainty of the impact brought on by COVID-19 has many businesses re-evaluating their business strategies, business continuity plans and transaction proposals. In particular, businesses will need to review pending acquisition agreements and consider "material adverse change" or "material adverse effect" (MAC) clauses. These clauses typically allow a party to walk away from a transaction where a material adverse change has occurred between signing and closing.

Definition and Application

MAC clauses are often considered "a term of art" given the highly contextual interpretation used to describe a potential event that affects a target business. In the M&A context, a typical MAC clause may be defined as any change, effect, fact, circumstance, occurrence or event that, individually or in the aggregate, is materially adverse to the business, operations, assets, properties or condition (financial or otherwise) of the target business,