Key Insight
A MAC clause sounds like a clean exit. In practice, invoking it leads to litigation — courts interpret MAC very narrowly, and buyers who try to use it to escape a bad deal they simply changed their mind about rarely succeed.
What Counts as a MAC
The definition is negotiated in the purchase agreement. Commonly included:
- Loss of a material customer representing significant revenue
- Material litigation or regulatory action that affects the business's ability to operate
- Material adverse change in the business's financial condition (e.g., revenue drops more than X% between signing and closing)
- Loss of a key employee or license critical to operations
Commonly excluded:
- General economic downturns or market conditions affecting the entire industry
- Changes in law or regulation affecting the industry generally
- Events known to the buyer at the time of signing
The Delaware Standard
Delaware courts (where most M&A disputes end up) have held a very high bar for what constitutes a MAC. The leading case, Akorn, Inc. v. Fresenius Kabi AG (2018), established that a MAC must be durationally significant — a short-term disruption, even a serious one, typically doesn't qualify. The adverse change must represent a "significant threat to the overall earning potential of the target in a durationally significant manner."
Practical Use in SMB Acquisitions
MACs are more commonly invoked in PE-backed deals. In small business acquisitions, the time between LOI and closing (typically 60-90 days) is short enough that dramatic adverse changes are less likely. The practical protection comes from: (1) strong reps and warranties with indemnification backstop, (2) escrow, and (3) clear closing conditions.
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