The recent global financial collapse has underscored the need for buyers in M&A transactions to provide for an effective exit from closing if the target business suffers a material adverse change (MAC) prior to closing. Buyers face a dilemma in relying on MAC conditions even in the current economic environment: most courts impose a significant burden on a buyer in demonstrating that a MAC has occurred justifying a walkaway from the deal. In fact, the Delaware Court of Chancery has yet to find that a material adverse change has occurred in the context of an M&A transaction.
However, through the case law that exists on the subject, the courts have signaled receptivity toward enforcing MAC provisions that set forth objective quantifiable metrics. As the M&A market continues to rotate in favor of buyers, now is the time for buyers to enhance the certainty of the MAC condition by including objective quantifiable metrics that would result in greater clarity and effectiveness of such provisions. This article will provide a basis for such a transition to the use of MAC provisions with greater specificity and also provide suggestions for increased precision.
