Material adverse change clauses (MAC clause)

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A Material Adverse Change Clause (MAC clause) is a clause that is sometimes used in a sale and purchase agreement where there is to be a gap between exchange and completion. The clause enables the buyer to withdraw from the deal where something happens between exchange and completion which is materially detrimental to the business they’re buying.

A recent High Court case [1] was concerned with a MAC clause in a share purchase agreement (the SPA). The clause defined a Material Adverse Event as: “an act or omission, or the occurrence of a fact, matter, event or circumstance, affecting [the target] giving rise to, or which is likely to give rise to, a material adverse effect on the business, operations, assets, liabilities, financial condition or results of operations of [the target] taken as whole”.

The SPA also contained a clause that the seller’s liability was limited by an acknowledgement of the buyer that the seller gave no warranty as to the accuracy of any forecasts, estimates, projections and statements of honestly expressed opinion provided to the buyer before the SPA was signed.

Following exchange, the target’s financial performance deteriorated – profits were 84.6 per cent down on forecasts. The target also made substantial downward adjustments to its forecasts between exchange and completion.

The buyer claimed that two events had occurred which fell within the MAC clause:

  • actual deterioration in the target’s financial performance in the month prior to completion
  • the target making substantial downwards revisions to its financial forecasts during the period between exchange and completion of the transaction.

The seller applied to strike out the buyer’s claims.

The Court held that it was arguable that the first of these was a Material Adverse Event, but not the second. The fact of revision of forecasts did not fall naturally within the words “act or omission, or the occurrence of a fact, matter, event or circumstance”. It was not the revision itself which was causative of adverse consequences, but rather what lay behind the need to make the revisions.

Further, the inclusion of revisions to forecasts within the meaning of Material Adverse Event was inconsistent with the statement in the SPA that the seller gave no warranty in respect of the accuracy of financial forecasts. To include forecasts within that definition amounted to forecasts being warranted.

WM comment

The case is a reminder that the courts will not interpret a MAC clause in isolation from the rest of the agreement and that the courts will look to the language of a particular clause as well as the commercial background when interpreting it.


[1] Ipsos SA v Dentsu Aegis Network Limited [2015] EWHC 1726