Material Adverse Change (MAC)Credit Repair Definition
A significant negative event or change that substantially impacts a business or transaction, potentially allowing a party to withdraw from a deal.
Definition
A Material Adverse Change (MAC) clause, also known as a Material Adverse Effect (MAE) clause, is a common provision in contracts, particularly in mergers and acquisitions (M&A) agreements and loan commitments. It allows a party (like a buyer or lender) to withdraw from a transaction or refuse to close the deal if a significant negative event occurs between signing the agreement and closing the deal that fundamentally changes the business, assets, or financial condition of the target company or borrower. What constitutes a 'material' change is often heavily negotiated and defined within the contract, but generally refers to events with a substantial, long-term negative impact, excluding general market downturns or industry-wide issues unless specifically included. Invoking a MAC clause often leads to disputes and litigation.
Frequently Asked Questions
What types of events might trigger a MAC clause?
Events could include: significant loss of major customers, adverse legal judgments, substantial damage to key assets, major regulatory changes specifically impacting the business, discovery of significant accounting irregularities, or drastic and sustained downturns in the company's specific business performance (beyond general market trends).
Are MAC clauses easy to invoke?
No, invoking a MAC clause is typically very difficult and often leads to litigation. Courts generally interpret MAC clauses narrowly and require a very high threshold of proof that the adverse change is substantial, durationally significant, and falls outside any negotiated exceptions (carve-outs) in the contract.
What are common 'carve-outs' in MAC clauses?
Contracts often specify events that do *not* constitute a MAC, such as: changes in general economic or market conditions, changes affecting the industry broadly (unless disproportionately affecting the target), changes in laws or accounting principles, acts of war or terrorism, or failure to meet financial projections (unless resulting from an underlying MAC).
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