Material Adverse Change (MAC) Clause
A contractual provision permitting one party (typically the buyer) to walk away from a transaction or refuse to close if specified categories of adverse events occur to the target business between signing and closing. Allocates signing-to-closing risk.
A material adverse change (MAC) clause, sometimes called a "material adverse effect" or "MAE" clause, is a contractual provision permitting one party (typically the buyer) to walk away from a transaction or refuse to close if specified categories of adverse events occur to the target business between signing and closing. The MAC clause is the principal contractual mechanism for allocating signing-to-closing risk.
Standard structure
Most MAC clauses define "material adverse change" as a change, event, or development that has a material adverse effect on the target's business, operations, financial condition, or results of operations, taken as a whole. The definition is then qualified by extensive carve-outs.
Standard carve-outs
Excluded from MAC: (1) general economic, financial, or political conditions; (2) industry-wide conditions; (3) acts of war, terrorism, or pandemic; (4) changes in law or accounting principles; (5) actions taken at buyer's request or required by the agreement; (6) failure to meet projections (with the underlying cause potentially still constituting MAC). Some carve-outs include "disproportionate effect" qualifiers, the carve-out applies only to the extent the adverse event affects the target similarly to other industry participants.
Texas case law
Texas appellate courts have not produced as developed a body of MAC jurisprudence as Delaware. Texas courts generally follow Delaware reasoning when interpreting MAC clauses, with the Delaware Supreme Court's Akorn v. Fresenius decision (2018) establishing the modern standard: MAC requires a substantial threat to the target's overall earnings power over a commercially reasonable period measured in years, not quarters.
Despite the prevalence of MAC clauses, successful invocations are rare. Buyers seeking to walk under a MAC face a high evidentiary burden, and Texas courts are skeptical of buyers using MAC clauses to escape transactions for other reasons. Practical use of MAC clauses is more often as renegotiation leverage than as a basis for termination.