A contractual provision in an SPA that allows the buyer to renegotiate or walk away from a transaction if a material adverse change occurs in the target company or its environment between signing and closing.
Between the moment a purchase agreement is signed and the moment the transaction actually closes, weeks or months can pass. During that interval, anything can happen: a pandemic, the loss of a customer representing 30% of revenue, a regulatory change affecting the entire sector. The MAC clause is the contractual mechanism that governs what happens if the world changes radically between signing and closing.
MAC stands for Material Adverse Change, also known as MAE (Material Adverse Effect). It is a provision in the sale and purchase agreement (SPA) that allows the buyer to renegotiate the terms or, in extreme cases, walk away from the transaction without penalty if an event occurs that significantly and adversely affects the target company’s business, assets, financial results, or prospects.
The MAC clause typically appears in two contexts within the SPA:
As a condition precedent. The absence of a MAC is a condition that must be satisfied for the buyer to be obligated to close. If a MAC occurs between signing and closing, the buyer can refuse to complete the transaction.
As a representation and warranty. The seller represents that, since the reference date of the financial statements, no material adverse change has occurred. If that representation later proves false, the buyer can claim indemnification.
The difficulty with MAC clauses lies in defining what constitutes a “material adverse change.” It is an inherently grey zone that generates the tensest negotiations in the SPA.
The buyer wants a broad definition: any event that negatively affects the business, assets, results, or prospects. The broader the definition, the greater the protection.
The seller wants a narrow definition: with clear exclusions that limit the buyer’s ability to invoke the MAC. Typical exclusions the seller negotiates include:
The negotiation revolves around where to draw the line between company-specific events (which could qualify as a MAC) and systemic events (which should not).
The MAC clause is the buyer’s safety net for the period between signing and closing. In transactions with simultaneous signing and closing (where execution occurs on the same day), the MAC clause loses relevance. But when there is a time gap — common in deals requiring regulatory approvals, third-party consents, or structured financing — the MAC becomes a critical provision.
For the buyer: The MAC allows withdrawal from the transaction without breaching the contract if something serious occurs. Without a MAC clause, the buyer would be obliged to close even if the company has lost half its revenue between signing and closing.
For the seller: The MAC clause is a source of uncertainty. Until closing actually occurs, the deal is not secure. A buyer experiencing remorse could attempt to invoke the MAC to renegotiate the price or abandon the transaction, even in response to events that are not truly “material.” The seller must therefore negotiate the narrowest possible definition and, ideally, include a mechanism for rapid dispute resolution (independent expert or accelerated arbitration).
Actual invocations of MAC clauses are extremely rare. International case law shows that courts set very demanding standards:
The most commonly disputed situations involve:
A PE fund signs the acquisition of a collective catering company for 30 million euros. Closing is scheduled eight weeks later, pending competition authority approval.
During that period:
The fund invokes the MAC clause regarding the lost educational contract. The seller argues that: (a) the contract is not lost for another six months, allowing time for partial replacement; (b) the company has historically lost and won similar contracts; and (c) the commodity price increase is an industry-wide event, not company-specific.
After negotiations, the parties agree not to trigger the MAC but to adjust the price downward by 2.5 million (reflecting the estimated impact of the contract loss) and to structure an earn-out of 1.5 million tied to the company’s ability to replace the lost revenue within 18 months.
If you are the seller:
If you are the buyer:
In transactions with a gap between signing and closing, virtually all do. In simultaneous signing-and-closing transactions, a MAC clause in the strict sense is unnecessary (because the transfer occurs immediately), although there may be seller representations regarding the absence of material changes since the financial statement reference date.
Technically, no. The MAC clause requires an objective, verifiable event that meets the materiality and adversity requirements defined in the contract. In practice, a buyer suffering remorse might try to force the clause’s interpretation, but courts and arbitrators tend to interpret MAC clauses narrowly. The reputational risk of invoking a MAC opportunistically is also significant in a market where advisors know each other.
Generally not, because they are macroeconomic events affecting the entire market and are usually covered by the exclusions. However, if the company has specifically elevated exposure to interest rates (for example, a consumer lending business) and the increase is of a magnitude that destroys its business model, an argument could be made. Everything depends on the specific wording of the clause and the negotiated exclusions.
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