Nixon Peabody’s annual analysis of material adverse change (MAC) clauses provides vivid insight into the prevailing conditions and concerns surrounding transactions.
Despite the passage of time, the lingering effects of the 2007-2008 financial crisis persist in several arenas, including in MAC clauses.
Of the 278 agreements surveyed, 256 contained a material adverse change in the “business, operations, financial conditions of the Company” as a definitional element, up from last year. Meanwhile, just eight of the agreements surveyed lacked a MAC closing condition.
This year’s survey suggests notable pro-bidder trends may be leveling off to a certain extent. This is evident through less use of pro-bidder language, such as “would reasonably be expected to” and “disproportionately affect” in MAC clauses.
This shift in balance is further reflected by increases in the inclusion of certain pro-target MAC exceptions. On average, approximately 12.6 exceptions per agreement were identified for all agreements surveyed and approximately 14.7 exceptions per agreement for the top 100 deals.
Notable examples of MAC exceptions appearing at a higher rate in the top 100 deals include carve-outs for changes in the economy or business, changes in securities markets, and changes in generally accepted accounting principles.
MAC exceptions for “changes in the economy or business in general” appeared in 89% of agreements reviewed, up slightly from last year. The MAC exception for “change in trading price or trading volume of Company’s stock” continued its decrease, as it was only found in 28% of agreements reviewed, compared to last year’s 36%.
The MAC exception for “changes in laws or regulations” has grown quite steadily in the past decade. This exception appeared in only 42% of transaction agreements reviewed in 2006 compared to its appearance in 88% of the agreements reviewed this year.
This year’s survey featured varying degrees of increases from last year’s in MAC exceptions for changes resulting from acts of war, acts of terrorism, political conditions, and acts of God.
The increase in the exception for MAC changes arising from larger political conditions seems likely attributable to questions surrounding the effects of Brexit and the 2016 U.S. presidential election.
As reported in previous surveys, U.S. courts have placed an onerous burden on bidders attempting to enforce MAC clauses.
Recent decisions, such as Luxco Inc. v Jim Beam Brands Co., furthered this trend. Generally, however, detailed precedent involving MAC clauses remains sparse.