Material adverse change (MAC) clauses find renewed interest

There was a time, not so long ago, when just a couple of well-crafted paragraphs were considered good enough to protect all parties of a corporate takeover in the event of a material change before the deal closed. But that’s changed. Now it’s not uncommon for complex contracts to include pages of provisions to cover an ever-growing list of possible material changes.

Maryse Bertrand, a partner specializing in corporate and securities law in the Montreal office of Davies Ward Phillips & Vineberg LLP, says that in some negotiations, material adverse change (MAC) clauses take up more time than any other aspect of the deal.

“In the past 18 to 24 months, we’ve seen a lot more focus on MAC clauses due in part to the size and complexity of some of the deals, and longer delays to closing,” says Ms. Bertrand.

While that does not necessarily mean that deals are taking longer to conclude, lawyers are spending a lot more time on MACs, particularly when regulatory or policy issues are involved that could delay the deal due to a lengthy approval process.

“For example, the sale of Telesat to Loral Space & Communications took practically a year to conclude, during which time both companies continued to do business. Material adverse changes that could have occurred in that period all needed to be addressed in the contract,” she said.

She adds that the lawyers obviously do all they can to anticipate possible material adverse changes, and most of the time they are quite accurate. “But if there is a material change that was not expected, the parties to the deal can always threaten to go to court to resolve a dispute or even renegotiate,” says Ms. Bertrand.

However, MACs are becoming more detailed to provide comfort and a greater degree of security to all sides, which is vitally important in the age of mega-deals.