Heightened geopolitical tensions in the region—including the prospect of an Iran–US conflict—are prompting renewed scrutiny of risk allocation in UAE-linked M&A transactions. A key issue emerging in active and recently signed deals is whether such developments could constitute a Material Adverse Change (MAC), thereby entitling buyers to terminate or renegotiate transaction documents.
MAC Under UAE Law: A Contract-Driven Concept
Under UAE law, MAC is not a statutory doctrine. Its applicability depends entirely on contractual drafting. Accordingly, whether a geopolitical event qualifies as a MAC is determined by the precise wording of the transaction documents, rather than the nature or scale of the event itself.
Key Considerations in Assessing MAC Risk
When evaluating whether a geopolitical escalation may trigger a MAC, the following factors are critical:
- Contractual Exclusions
Most M&A agreements expressly exclude events such as war, hostilities, sanctions, changes in law, and general economic or market disruption from the definition of a MAC. These exclusions are often qualified by a “disproportionate effect” test, allowing a MAC claim only where the target is affected more severely than its peers.
- Target-specific impact requirement
A MAC cannot be established based on general market volatility alone. The buyer must demonstrate a material and adverse effect on the target itself, such as operational disruption, loss of key contracts, or direct sanctions exposure.
- Materiality and duration threshold
The adverse impact must be significant and sustained, not temporary or speculative. Even severe short-term disruption is unlikely to satisfy the MAC threshold.
Interaction with the UAE Civil Code
Where a MAC clause is not triggered, parties may consider relief under the UAE Civil Code, although such remedies are limited in scope:
- Force majeure (Article 273 UAE Civil Code)
Applies only where performance becomes objectively impossible due to an external event. This threshold is high and rarely met in M&A transactions. - Exceptional circumstances (hardship) (Article 249 UAE Civil Code)
Where performance becomes excessively onerous, UAE courts may intervene to rebalance contractual obligations but will typically not permit termination.
Dispute Resolution Considerations
The chosen dispute resolution mechanism plays a critical role in how these doctrines are applied. UAE courts have broad discretion to adjust contractual obligations under hardship principles, whereas arbitral tribunals will generally adhere more strictly to the contractual allocation of risk, including MAC provisions and negotiated carve-outs.
Conclusion
A potential Iran–US conflict, in itself, is unlikely to constitute a MAC in UAE M&A transactions. The determining factor remains contractual risk allocation, including the scope of MAC definitions, carve-outs, and the ability to demonstrate a material, disproportionate, and sustained impact on the target.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
