Nixon Peabody recently posted its 2019 MAC Survey, and the results suggest that the terms of MAC clauses continue to move in a buyer-friendly direction. Here’s an excerpt:
Of the 200 agreements surveyed, 196 (98%) contained a material adverse change in the “business, operations, financial conditions of the Company” as a definitional element. This is an increase from the previous survey, when this element appeared in 89% of all agreements . Meanwhile, none of the 200 acquisition agreements reviewed this year lacked a MAC closing condition, compared to 7% reported in the 2017 survey and 3% reported in the 2016 survey . These trends demonstrate the universal acceptance of MAC clauses in M&A documents.
This year’s results indicate a continuing shift toward a more objective test in determining whether a change constitutes a MAC . More agreements contained the pro-bidder “would reasonably be expected to” language in the MAC definition—it appeared in 74% of the deals reviewed this year, while appearing in 62% of all deals reviewed in 2017 . This language appeared in 54% of all deals reviewed in 2016, 61% of deals reviewed in 2015, 56% in 2014, 53% in 2013, 42% in 2012, and just 29% in 2011 . By defining a material adverse effect to involve circumstances that “would reasonably be expected to” lead to a MAC, a bidder introduces a forward-looking feature to the definition, allowing it to adopt a more lenient approach during negotiations over whether a material adverse change in the target’s prospects needs to be covered by the definition.
We also saw an increase in the usage of pro-bidder “disproportionately affect” language in the MAC exceptions during this year’s surveyed period . Such language appeared in 87% of the deals reviewed this year, while appearing in 76% of deals reviewed in 2017 and 81% and 83% of deals reviewed the two years before—which evidenced a significant increase over the 73% found in our 2011 and 2012 surveys and the 48% and 40% found in our 2009 and 2010 surveys, respectively. “Disproportionately affect” language carves out exceptions from the MAC clause to ensure that bidders have the protections of the MAC clause in the event the target company suffers more greatly than its peers from a specified event, such as a general economic or industry downturn . We are optimistic that the increase in the use of “disproportionately affect” clauses reflects the continued maturation and uniformity of MAC provisions generally.