Material Adverse Change (MAC)
A significant negative change in a business between signing and completion that may allow the buyer to withdraw.
Full Definition
A Material Adverse Change (MAC) clause allows a buyer to withdraw from a transaction if there is a significant negative change in the target company's business, financial condition, or prospects between signing and completion.
Typical MAC definition covers:
- Material decline in financial performance
- Loss of key customers, contracts, or employees
- Significant litigation or regulatory issues
- Damage to business operations or assets
Carve-outs (changes that don't count as MAC):
- General economic or market conditions
- Industry-wide changes
- Changes in law or accounting standards
- Matters disclosed to buyer
- Actions required by the agreement
- COVID-19 or pandemic impacts (post-2020)
MAC clause usage:
- Condition precedent: No MAC as condition to complete
- Warranty: Seller warrants no MAC has occurred
- Termination right: Right to walk away if MAC occurs
UK vs US practice: UK deals less frequently include MAC conditions than US deals. UK courts have been reluctant to find MAC events, setting a high threshold. Sellers often successfully resist MAC conditions or negotiate extensive carve-outs.
Best practice: Define MAC clearly and specifically rather than using generic language to improve enforceability.
Related Terms
Conditions Precedent
Specific requirements that must be satisfied before a transaction can complete.
Completion
The legal transfer of ownership when all conditions are satisfied and the transaction formally closes.
Signing
The execution of the definitive transaction agreements, which may or may not coincide with completion.
Warranties
Contractual statements by the seller about the business, breach of which may entitle the buyer to damages.