Material adverse change
M&A / Merger ModelA contractual right for a buyer not to complete if something sufficiently bad and sufficiently specific happens to the target between signing and completion.
Also written: MAC, MAC clause, material adverse effect, MAE
The clause exists because signing and completion are separate events. Regulatory clearance, works council consultation and financing take time, and during that gap the buyer is committed to a business it does not yet own. In principle the clause is its protection. In practice it is close to unusable, and understanding why is more useful than being able to recite the drafting.
The definition is negotiated down until almost nothing is left. General economic conditions, industry wide conditions, movements in financial markets, changes in law or in accounting standards, war, terrorism, pandemics and the target's failure to meet its own projections are all carved out, and each carve out is then qualified so that the exclusion falls away only where the target is affected disproportionately compared with its peers. What survives is an event particular to this company that hits it harder than its industry.
The interpretation narrows it again. Where these have been litigated, most instructively in Delaware, the change has had to substantially threaten the earnings power of the target over a commercially reasonable period measured in years rather than quarters, and the burden sits on the buyer invoking it. A bad quarter does not qualify, and neither does a cyclical downturn.
In a UK public offer it is narrower still, because a bidder may not invoke a condition to lapse its offer unless the circumstances are of material significance to it in the context of the offer, and that judgement belongs to the Takeover Panel rather than to the bidder. So the honest answer to whether a buyer can walk on one is that it probably cannot, and that the clause is mostly used as leverage to reopen price.
Worked example
A buyer signs in March and clearance is expected in December. In September the target loses its largest customer and earnings fall by a third, with no recovery in sight.
That is the fact pattern the clause was written for: specific to this company, worse than the industry, and durable rather than a bad quarter. It is also rare enough that most invocations never reach a judgment.
The common outcome is different. The buyer threatens, the seller prefers a lower price to a failed process, and the parties reprice rather than litigate.