MAC clause

What it means

A MAC clause, short for material adverse change, is a contractual provision that lets a buyer or lender walk away from a transaction or withhold performance if the position of the company or the market deteriorates substantially before completion. It is common in share purchase agreements and loan agreements.

The clause covers the period between signing and closing, which can last weeks or months, for example because of merger clearance or financing. The buyer does not want to be bound by the price if the business it is buying changes significantly for the worse in the meantime.

Disputes usually turn on what counts as a normal fluctuation and what is a material adverse change. Courts abroad generally require the deterioration to be significant and durable rather than short-term. Contracts therefore often define specific thresholds, such as a fall in EBITDA by a certain percentage.

How it works in practice

The seller tries to narrow the clause and carve out events affecting the whole market, such as changes in law, macroeconomic developments or a pandemic, unless they hit the company disproportionately compared with competitors. The buyer, by contrast, wants broader protection.

In loan agreements and under a loan commitment, a MAC clause allows the bank to refuse drawdown or accelerate repayment if the borrower's financial position deteriorates materially. It thus complements financial covenants, which measure specific ratios.

The clause builds on the findings of due diligence. Risks the buyer knew about at signing generally cannot later be called a material adverse change. If something worries the buyer, it is better dealt with through the price, warranties or closing conditions.

What to watch out for

A MAC clause is not the same as force majeure. Force majeure deals with performance becoming impossible because of an extraordinary event, while a MAC clause gives a right to withdraw when value or results deteriorate even though performance remains possible. The wording must be precise to be usable.

Invoking the clause almost always leads to a dispute, because the parties disagree on whether the change was material enough. It is advisable to specify who must prove the change, which indicators are compared and as of which date, and to agree on the governing law and the court or arbitral body.