Material Adverse Change Clauses

By Simon Tysoe

For many years, US and UK M&A practices have differed in their use of material adverse change clauses (MACs) in sale and purchase documents. Common, even ubiquitous in the US, these clauses, which permit a buyer to refuse to close upon the occurrence of events detrimental to the target, remain a rarity in SPAs on this side of the Atlantic. However, oil and gas transactions, especially those involving upstream assets, prove an exception to this rule.

MnAViewsMAC imageAug2016The differences between US and UK practices are most apparent in private deals. MACs remain rare in UK practice but are more common in oil and gas deals, with around a third of private upstream deals having a MAC. Even within oil and gas practice, however, US sale and purchase arrangements are much more likely to contain MACs than UK documents. The drafting tends to be different too. US MACs are often general in nature, covering events with an adverse financial or operational impact. This broad introduction is typically subject to a number of carve-outs, such as general economic conditions and market conditions, and general economic, regulatory, or political conditions or changes.