The Cost of Uncertainty About Material Adverse Changes

Material adverse change/effect (“MAC”) clauses have evolved into important risk-allocation mechanisms that are commonly included in high-profile mergers and acquisitions (“M&A”) and financing deals. They typically allow lenders or buyers to either terminate an agreement without cost or penalty or renegotiate the agreement from a position of strength. When the prospects for business are dark, desperate lenders and buyers seek to rely on the ex-post triggering function of MAC clauses to avert disaster.

The uncertainty caused by COVID-19, exacerbated in the UK by Brexit, has forced many market participants to re-examine their deals. While some have managed to adjust, others … Read more