MAC clauses are a legal concept whose purpose is to cover the parties to a contract against the risk of a material adverse change that could frustrate the purpose of the contract or render it meaningless. In fact, their acronym corresponds to the English expression «material adverse change».
The inclusion of MAC clauses is common in different types of contracts: financing transactions, leasing contracts, supply contracts. However, in this article we will focus on their usefulness in M&A transactions.
A clause against negative circumstantial changes
MAC clauses come from Anglo-Saxon law. They are included in mergers and acquisitions contracts to make the completion of the operation or transaction conditional upon the non-occurrence of certain negative and relevant events or circumstances that entail a substantial change with respect to the situation existing at the time of signing the contract. A classic example would be the drastic and unexpected loss of value of the target company in the context of a share deal.
There are various possibilities. Most commonly, MAC clauses give one party the right to terminate the contract in the event of the material change adverse to its interests. But an MAC clause may also simply grant the right to modify the initial contractual terms. Or it may act as a suspensive clause so that the transaction is never consummated.
When to include MAC clauses in mergers and acquisitions
MAC clauses are particularly advisable when there is a long time delay between the signing of the contract (perfection) and the closing of the transaction (consummation). This delay may be due to a lack of necessary consent or because the buyer is waiting for the necessary financing.
In these cases, MAC clauses serve to ensure the buyer a contractual exit without incurring a breach of contract. Because the longer the time between completion and consummation, the greater the chances that unforeseen events will occur and frustrate the deal.
Even if there is no long time deferral. The inclusion of MAC clauses is also advisable in any contract of a complex nature. Also in those that are framed in volatile or highly uncertain markets.
The limitations of the rebus sic statingus doctrine
MAC clauses share similar features with the so-called rebus sic stantibus doctrine. This is a figure that applies when, in the face of unforeseeable circumstances not attributable to either of the parties, there is a rupture or an absolute disproportion of the equilibrium that causes the performance of the contract under the conditions initially agreed to be excessively burdensome for one of the parties.
However, Spanish courts have traditionally applied the rebus sic stantibus jurisprudential doctrine in an extremely restrictive manner. For this reason, the subscription of a MAC clause is always the best alternative. Because it constitutes an express and binding contractual agreement between the parties.
How to draft a MAC clause
In order to provide MAC clauses with maximum legal certainty and avoid disputes over their interpretation, it is essential to define in the greatest detail which circumstances are to be considered as substantial or material. For this reason, it is essential to have a team of lawyers who are experts in negotiating and drafting M&A contracts and who are able to foresee all the possibilities that may arise in each case without leaving any loose ends.