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Joseph M. McLaughlin and Shannon K. McGovern. Courtesy photos

A Material Adverse Effect clause (MAE) is a standard part of acquisition agreements; it permits the buyer to terminate the agreement upon the occurrence of contractually defined adverse changes in the target’s business between the signing of the agreement and closing. Few decisions have interpreted this risk allocation provision because most disputes about the significance of post-signing adverse changes to the target are resolved without litigation through price renegotiation or agreed termination of the merger. But the general understanding from the case law has been that buyers asserting a Material Adverse Effect face a steep burden to terminate the merger.

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