We recently released our MAC Survey, which studies deal trends involving material adverse change clauses—the language included in M&A transactions as a safeguard against unforeseen changes on the way to closing.
Here, we explore how exceptions factor into recent MAC language.
Exceptions applied to dilute risk
MAC exceptions prevent bidders from walking away from a deal or seeking a renegotiation of material terms on the basis that a material adverse change has taken place. While targets often attempt to expand exceptions to shift risk to the bidder, bidders aim to reduce the number and scope of exceptions allowed.
Our survey revealed that MAC exceptions appeared more frequently in large deals. We tracked an average of 16.1 exceptions per agreement for deals valued at $1 billion or more, compared to 15.3 exceptions per agreement among the deals valued at less than $1 billion.
Non-financial factors at the forefront
Dealmakers understand that market fluctuations are only one of the factors that could threaten the viability of a transaction. In the two-year period covered in this survey, we spotted an uptick in exceptions related to non-financial considerations,
- MAC exceptions for “changes in the economy or business in general” and “changes in general conditions of the specific industry” dropped by about 5% since our last survey.
- The appearance of MAC exceptions for “change in trading price or trading volume of Company’s stock” decreased as well—that factor was included in only 25% of deals, a decrease from 49% in our prior survey.
Here are some of the common themes in recent MAC exceptions, and their frequencies among the agreements we reviewed:
- Changes due to acts of war or major hostilities (92%)
- Changes due to acts of terrorism in the United States or abroad (92%)
- Changes in laws or regulations (90%)
- Changes in political conditions (84%)
- Acts of God (62%)
The two themes with the sharpest increases since our last survey were “international calamity” (89% compared to 26% in our last survey) and pandemics/COVID exceptions (88% compared to 25% in our last survey).
As economic, environmental, global health, and geopolitical volatility accelerate market changes, bidders are more frequently seeking to invoke clauses to renegotiate deal pricing or terminate deals prior to closing.
Nixon Peabody has a pulse on the M&A landscape, and we help sophisticated companies and investors navigate the MAC trends created by a rapidly changing marketplace. Our team looks forward to connecting with you about how MACs can help your business strengthen new opportunities and close deals.