Recent Developments In Market Practice And The Law Governing Material Adverse Change Clauses

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Mergers & Acquisitions, April 2008

Material adverse change (MAC) (also referred to as material adverse effect) clauses are present in some fashion in virtually every merger or acquisition agreement. In an M&A transaction, a MAC clause allocates the risk of an unforeseen adverse event occurring during the time between signing and closing. Buyers typically want to ensure that they can get out of the deal if an event occurs prior to closing that is materially detrimental to the target. The recent downturn in credit markets has highlighted the significance of MAC clauses, particularly for debt-financed buyers. Not surprisingly, the law concerning MAC clauses is not static. This article considers recent U.S. case law developments regarding MAC clauses in M&A transactions that are likely to have implications in