Material Adverse Change (MAC)
Allows a buyer to walk away if a significant negative change occurs in the target company before closing.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Material Adverse Change (MAC)?
A Material Adverse Change (MAC) clause - also called a Material Adverse Effect (MAE) clause - is a provision in acquisition agreements and financing documents that allows a buyer or lender to walk away from a deal if a significant negative event occurs between signing and closing. It protects the buyer from being locked into a deal for a company that has fundamentally changed for the worse.
Despite their ubiquity in M&A deals, MAC clauses are rarely successfully invoked. Delaware courts - which govern most major US M&A transactions - have set a very high bar. A MAC must represent a change that is durationally significant, not merely a short-term setback, and must substantially threaten the overall earnings potential of the target in a long-term and significant manner.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Scope of What Qualifies as a MAC
The definition is heavily negotiated. Sellers want narrow definitions; buyers want broad ones. A typical MAC clause covers any event that has or would reasonably be expected to have a materially adverse effect on the business, financial condition, results of operations, or prospects of the target company.Carve-Outs (What Does NOT Qualify)
Sellers negotiate extensive carve-outs from the MAC definition: general economic conditions, industry-wide changes, financial market fluctuations, acts of war or terrorism, pandemics, and changes in law or accounting standards. The more carve-outs, the harder it is for a buyer to invoke a MAC.Disproportionate Impact Exception
Even within a carve-out category, if the target is disproportionately affected compared to peers, the carve-out may not apply. For example, an industry-wide downturn is normally carved out - but if the target suffers far worse than competitors, the buyer may still be able to invoke a MAC.Delaware's High Bar
In the landmark case Akorn v. Fresenius (2018), the Delaware Court of Chancery found a MAC for the first time in M&A history - but stressed the bar is extremely high. The change must be significant in both magnitude and duration. A bad quarter or temporary setback does not meet the threshold.MAC in Debt Financing
MAC clauses also appear in credit agreements and term loans, allowing lenders to refuse to fund or demand repayment if a MAC occurs. These are separate from acquisition MAC clauses and are interpreted under the same general standards.Real-World Example
TechFund agrees to acquire SaaS startup DataBloom for $40M in March. Before the July closing, DataBloom loses its two largest customers - representing 55% of annual recurring revenue - due to a product failure. TechFund invokes the MAC clause to terminate the deal.
TechFund has a strong argument. Losing 55% of ARR is not a short-term blip - it is a fundamental change to the company's earnings base. If there are no applicable carve-outs (this was not an industry-wide issue or general economic change), and DataBloom does not qualify as "disproportionately affected" by a carved-out event, TechFund can likely walk away without liability. DataBloom would need to prove the losses are temporary and curable to defeat the MAC claim.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
MAC Definition (seller-friendly, with standard carve-outs)Watch Out For
Assuming a bad quarter triggers a MAC
It almost never does. Courts look for durable, long-term impairment - not short-term volatility. Buyers who invoke a MAC based on a temporary earnings miss are likely to lose in litigation and face liability for wrongful termination of the deal.Accepting broad general economic carve-outs without the disproportionate impact exception
If the MAC definition carves out general economic downturns without a disproportionate impact exception, the buyer has no MAC right even if the target is devastated by a recession while competitors survive. Always include the disproportionate impact carve-back when negotiating as a buyer.Not conducting due diligence because you have a MAC clause
A MAC clause is a last resort, not a substitute for thorough due diligence. The legal battle to invoke one is expensive and uncertain. Identify risks before signing rather than relying on a MAC to protect you.Don't let material adverse change (mac) deadlines catch you off guard
Key dates tied to material adverse change (mac)s - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Sellers: negotiate the broadest possible carve-outs
As a seller, push to exclude general economic conditions, industry-wide changes, changes in law, pandemics, and market fluctuations - with no disproportionate impact exception. The more risks are carved out, the harder it is for the buyer to walk.Buyers: include specific financial thresholds
Rather than relying on the subjective "materiality" standard, negotiate objective triggers - for example, "revenue declining more than 20% compared to the prior year period." Objective thresholds are far easier to establish and harder to dispute than the general MAC standard.Frequently Asked Questions
Has a court ever found a Material Adverse Change occurred?
Yes - the Delaware Court of Chancery found a MAC in Akorn v. Fresenius (2018) after discovering that the target had engaged in pervasive regulatory fraud and that the underlying business had dramatically deteriorated. This remains the leading case, and courts still treat MAC findings as exceptional rather than routine.
Does COVID-19 qualify as a MAC?
In most deal agreements signed before March 2020, pandemic effects were not explicitly carved out. Courts have generally held that general pandemic-related disruption alone does not trigger a MAC - it must be shown that the specific target was disproportionately harmed. For deals signed after early 2020, pandemic carve-outs became standard.
What is the difference between a MAC and a closing condition?
A MAC clause is typically structured as a closing condition - the buyer's obligation to close is conditioned on no MAC having occurred. If a MAC has occurred, the buyer can refuse to close without breaching the deal. Both are part of the acquisition agreement, but they operate differently: closing conditions are affirmative requirements; a MAC is a negative event that defeats one of those conditions.