Material Adverse Change Clause
Also called: MAC Clause · Material Adverse Effect Clause
A material adverse change clause allows a party — commonly an investor or acquirer — to walk away from a deal if something significantly and negatively affects the target company's business between signing and closing. It protects the party committing capital from a deal that's no longer the one they agreed to.
In more detail
There's usually a meaningful gap between signing an investment or acquisition agreement and actually closing it — regulatory approvals, due diligence completion, or other conditions take time. A MAC clause protects the investing party from being locked into a deal if the target's business materially deteriorates during that gap.
The definition of "material" is where nearly all the real negotiation happens — a narrow, specific definition (a defined revenue drop, loss of a named major customer) is far more predictable than a vague "material adverse change in business, operations, or prospects," which can become a pretext to exit for almost any reason.
MAC clauses are notoriously difficult to actually invoke successfully in practice — courts in most jurisdictions set a high bar for what counts as sufficiently material, so the clause is often more of a negotiating tool than something regularly exercised.
Between signing and closing an acquisition, the target company loses a customer that represented 40% of its revenue. Under a MAC clause defining a "material adverse change" as including major customer loss, the acquirer may have grounds to walk away from the deal or renegotiate its terms.
What our lawyers check
- Whether "material adverse change" is defined specifically or left vague
- Specific carve-outs — general market or industry-wide downturns are commonly excluded
- Who bears the burden of proving a MAC has occurred
- What remedy is available if a MAC is established — walk-away, renegotiation, or both
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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