The global efforts to contain the COVID-19 pandemic’s spread, and the resulting massive business disruptions and economic uncertainties, raise novel questions for parties in M&A transactions. One such question that has already been the subject of significant litigation is whether a global pandemic such as COVID-19 triggers a material adverse effect (“MAE”) clause, allowing a buyer to terminate the deal after signing but prior to closing.

As the COVID-19 crisis continues, more M&A parties will likely continue to look to MAE clauses to attempt to exit deals. This article discusses MAE clauses generally and a seminal case from the Delaware Court of Chancery that provides guidance on the circumstances under which courts might allow buyers to utilize MAE clauses to terminate transactions. The article also summarizes the wave of recently-filed MAE litigation, and provides practical guidance for the drafting of MAE and related clauses in light of the COVID-19 pandemic.