Beating back the MAC

This summer’s credit crunch and subprime mortgage woes have thrown into doubt the fate of large buyout deals, ranging from Accredited Home Mortgage to Acxiom, Harman International Industries, HD Supply and Sallie Mae. In several cases, the material adverse change (MAC) or material adverse effect clause has been cited by private equity buyers as their way out of agreements struck in better economic times. Some, but not all, of these MAC strategies have been successful.
The latest results in an annual MAC survey by law firm Nixon Peabody has found that sellers have more bargaining power in larger buyout deals. Sellers, of course, try to narrow the range of triggers that would put a MAC in effect, thereby allowing a buyer to walk away from the deal. Buyers, of course, push for MAC language that gives them as many excuses as possible to kill the deal. Nixon Peabody randomly selected 413 deals with values of $100 million or more, and which have merger agreements dated between June 1 of the prior year and May 31 of the current year. Nixon Peabody then took the largest 100 deals of this sample and compared them with the rest of the 413 deals.
The table below shows the frequency of specific MAC exceptions (language specifying what events do not constitute a valid MAC).
Compared with the previous year, the Boston-based law firm also found that there was a marked increased in MAC exceptions for market volatility. Triggers relating to “changes in securities markets” and “changes in trading price or trading volume of target’s stock” rose 24 percent and 18 percent respectively over the previous year.