Material adverse change clauses (MACs) are a means for the parties to the contract to determine who will bear the risk of adverse events that occur between the signing of an agreement and the closing. MACs are frequently not stated in dollar terms. How might MACs affect the negotiating strategies of the parties to the agreement during the period between signing and closing?

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The Answer is Buyers typically will use these clauses to drive the acquisition price down to exploit changing market conditions or adverse events affecting the target firm. By not defining the magnitude of the change in dollar terms, the buyer has more leeway to invoke the clause. A seller may also want to avoid quantifying a MAC in order to have greater flexibility to argue that an event does not constitute a material change. In both instances, the final purchase price is likely to be lower than that designated in the agreement of purchase and sale.

Material Adverse Change Clauses (MACs) Are a Means for the Parties