In fact, this at least enables the purchaser to enforce a reduction of the purchase price by threatening to withdraw from the purchase agreement. Please enable JavaScript to view the site. Sample MAC Clause taken from underwriter's form in a Shelf/Debt - Form S-3 - Underwriting Agreement (revised March, 2000): The Company shall have furnished to the Repre-sentatives a certificate of the Company, signed by the Chairman of the Board or the President … As a result of its potential impact, a MAC clause is often heavily negotiated between the parties and their lawyers. Whether the COVID-19 pandemic can cause a right of withdrawal by the purchaser under a MAC clause depends on its specific wording. From the seller's point of view, if an inclusion of a MAC clause in the purchase agreement cannot be avoided - against the background of the Parties bargaining powers or for other reasons, the MAC clause should be limited to internal circumstances of the target company. © 2020. See, Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. Trends in Material Adverse Change Clauses – Implications of Coronavirus on M&A Transactions. By: Robert M. Berman and Craig A. Enck Although Material Adverse Change (“MAC”) clauses are quite prevalent in loan and financing documents, there is very little case law in Maryland dealing with the successful or unsuccessful enforcement of these clauses. If the purchase price is financed externally, it should also be ensured - as with all closing conditions - that any MAC clause contained in the financing agreement is identical to the MAC clause in the purchase agreement. NEGOTIATING MAC CLAUSES WHAT IS A MAC? In many cases, changes in the general economic conditions or the industry of the target company are unlikely to be covered by the definition of the MAC. If this clause differs in content from the MAC clause contained in the purchase agreement, there is a risk that the financing bank will withdraw from the financing agreement while the purchaser remains bound by the purchase agreement. However, it is in the purchaser's interest to include a clause as comprehensive as possible and not limited to company-specific circumstances but also covering industry-related and general economic processes or developments. Join us for a celebration of 175 years of making an impact that matters. But do commonly used forms of MAC clauses apply in cases such as the COVID-19 pandemic? If there (i) occurs a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower, or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations or (iii) is a material impairment of the value or priority of Bank's security interests in the Collateral; If a MAC clause contains a specification, the definition of the MAC event strongly depends on the concrete form of the transaction and the industry of the target company and can therefore vary considerably. Deloitte Legal Rechtsanwaltsgesellschaft mbH. Adverse changes in the general economic or respective market situation or the mere probability of events occurring should be explicitly excluded from the scope of the clause. The economics of deal risk: allocating risk through MAC clauses in business combination agreements, Lessons to Potential Sellers: Channel Your Energy into Negotiating Strong Documents; by Lynette K. Oyster, TIC sponsors navigate a changing lending market, MAC Automated Deployment Reporting System, MAC Conference on Concurrent Systems and Parallel Computation. 1. A MAC clause, usually a highly negotiated term, allocates various contractually defined risks, or “adverse changes,” between a buyer and a seller. A Material Adverse Change, or MAC clause is a section in the merger agreement listing various scenarios where either party can terminate the deal under a set of pre-specified circumstances. (CONT’D) Sample closing condition provisions: — “Buyer’s obligation to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions. Unfortunately, what constitutes a material adverse change is not clear cut. For the purpose of concretization, MAC clauses often contain a catalogue of examples of MAC events which shall be either explicitly covered or excluded from the scope of the clause. See terms of use for more information. In fact, pandemics are often even explicitly excluded from the possible reasons for a withdrawal right in conventional MAC clauses. MAC clauses, which originate from the Anglo-American legal system and have always been widely used there, usually grant the purchaser the right to, in the event of a material adverse change (Material Adverse Change or "MAC" for short), either under certain conditions withdraw from the already signed but not yet closed purchase agreement or to assert corresponding guarantee claims. A borrower’s defense to a MAC assertion will turn on the facts of the transaction and the impact the crisis has had on its business. . Rather rarely, a MAC clause is designed as a guarantee given by the seller, which, in the event of a MAC event occurring between signing and closing, gives rise to a claim of the purchaser under the representations and warranties. In addition to financial thresholds, temporal thresholds can also be agreed, such as the minimum duration of a strike or interruption of the supply chain as well as a minimum duration of the deterioration of the agreed key performance figures. The legal forms of MAC clauses can be very different. A material adverse change (MAC) clause is one of the mechanisms adopted by the parties to M&A deals on account of their fear of unpredictable transaction risks. Rather rarely, a MAC clause is designed as a guarantee given by the seller, which, in the event of a MAC event occurring between signing and closing, gives rise to a claim of the purchaser under the representations and warranties. MAC clauses are complex and need to be drafted very precisely. A MAC clause is a clause typically requested by the purchaser of a business to be inserted into a sale and purchase agreement (SPA). 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