Understanding the “Material Adverse Change” Clause in M&A Deals: A Seller’s Guide
In the high-stakes world of mergers and acquisitions, few contract provisions are as misunderstood — or as potentially disruptive — as the Material Adverse Change (MAC) clause. Often tucked deep within the purchase agreement, this clause gives buyers a potential escape route if the target business suffers a significant negative event between signing and closing.
For sellers, understanding how MAC clauses work — and how to negotiate them — is essential to protecting deal certainty and value.
What Is a Material Adverse Change Clause?
A MAC clause allows the buyer to terminate or renegotiate the deal if the seller’s business experiences a substantial, unexpected deterioration before closing. It’s designed to protect buyers from acquiring a business that’s no longer what they agreed to purchase.
However, courts interpret MAC clauses narrowly. The change must be:
Material — not trivial or short-term
Adverse — negatively impacts the business
Unexpected — not reasonably foreseeable at signing
Common MAC Triggers
While every deal is unique, here are some of the most common events that buyers may try to classify as a MAC:
CategoryPotential MAC TriggersFinancialSignificant drop in revenue, EBITDA, or cash flow; insolvency or bankruptcy riskOperationalLoss of key customer, supplier, or executive; facility shutdowns; supply chain disruptionsLegal & RegulatoryGovernment investigation; litigation; loss of licenses or permits; regulatory changesIndustry & MarketSector-wide downturn; competitor disruption; reputational damageExternal EventsNatural disasters; pandemics; geopolitical instability; cyberattacks
Important: Many MAC clauses include carve-outs for industry-wide events (e.g., COVID-19), seasonal fluctuations, or known risks disclosed during diligence. These carve-outs protect sellers from being penalized for events outside their control.
Why Sellers Should Care
MAC clauses can be used to:
Delay closing
Renegotiate price or terms
Terminate the deal entirely
For sellers, vague or overly broad MAC language creates uncertainty and leverage for buyers. It can also lead to litigation if the buyer invokes the clause without clear justification.
Real-World Example
In 2020, LVMH attempted to back out of its $16.2 billion acquisition of Tiffany & Co., citing a MAC due to COVID-19’s impact on retail. The dispute ended with a $425 million price reduction — a reminder that MAC clauses can reshape deal economics even if they don’t terminate the deal.
How Sellers Can Protect Themselves
Here are five strategies sellers can use to negotiate MAC clauses more effectively:
Define “Material” with Metrics Tie MAC triggers to objective thresholds (e.g., 20% drop in EBITDA) to reduce ambiguity.
Include Carve-Outs Exclude known risks, seasonal trends, and industry-wide events from MAC coverage.
Limit the Time Window Restrict MAC applicability to a defined period (e.g., between signing and closing).
Require Notice and Cure Periods Give sellers the right to respond or remedy alleged MAC events before termination.
Align with Disclosure Schedules Ensure that disclosed risks are excluded from MAC claims to avoid double jeopardy.
Broker and ADvisor Roles in Managing MAC Risk
Business brokers and advisors play a critical role in:
Flagging MAC clauses early in the process
Helping sellers prepare robust disclosure schedules
Coordinating with legal counsel to tighten language
Educating sellers on how operational decisions may affect MAC exposure
Final Thoughts
The MAC clause isn’t just legal boilerplate — it’s a strategic lever that can make or break a deal. Sellers who understand its mechanics and negotiate it thoughtfully are far more likely to close with confidence.
If you’re preparing to sell your business or advising a seller, make sure the MAC clause is on your radar — and not just in the fine print contact us at Lomba, P.A. South Florida’s Boutique Business Litigation and Advisory Firm.