Material adverse change (MAC)
A material adverse change clause allows a buyer to refuse to close if the business suffers a serious, adverse change between signing and closing. It exists because time passes between the two, and the buyer priced the business as it was when they signed.
MAC clauses are heavily negotiated and, in practice, hard to invoke. Courts have generally treated them as aimed at durable, fundamental deterioration rather than a bad quarter or a broad market downturn, and the party seeking to rely on one carries a heavy burden.
What is usually carved out
- General economic, market or interest-rate conditions
- Conditions affecting the whole industry rather than this business specifically
- Changes in law or accounting standards
- Effects caused by the transaction itself being announced
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentSelling a business
- 02Treadstone LawLegal commentaryMaterial Adverse Change Clauses in Ontario Business Sale Agreements
- 03Treadstone LawLegal commentaryConditions Precedent to Closing in an Ontario Business Sale Agreement
- 04Treadstone LawLegal commentaryDisclosure Schedules in an Ontario Business Sale Agreement
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