What It Does
A material adverse change clause is the walk-away switch in a deal that signs now and closes later. Between signing and closing the buyer's money is committed but the business can still deteriorate, and the MAC clause decides who carries that risk. For in-house counsel, it is both a closing condition and the bring-down test that asks whether the representations are still true. The operative questions are what counts as material and durationally significant, which changes are carved out (economy, industry, announcement effects), and whether a disproportionate-effect exception pulls some of those back in. A practical test: list the risks that actually threaten this business and check whether the carve-outs would excuse them; if so, the clause will not protect the buyer.
When You'll See It
The material adverse change clause is core to merger and acquisition agreements, credit and loan agreements, equity and debt commitment letters, and large supply or purchase agreements. In M&A it gates the buyer's obligation to close; in financing it conditions the lender's obligation to fund, where it often appears as the "no material adverse change" or "no MAC" condition. It is most heavily negotiated in M&A, where the carve-outs and the disproportionate-effect exception are drafted line by line.
It matters most in deals with a gap between signing and closing, especially in volatile industries or on long regulatory timelines. The longer the gap and the more exposed the business, the more weight the MAC clause carries.
Examples
Dominion Energy, Inc. / Berkshire Hathaway Energy Company
Purchase and Sale Agreement
Carve-outs + disproportionate-effect exception
Mutual
2023
"[...] with respect to clause (i) through (viii), to the extent that such event, occurrence or circumstance does not affect the Target, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the business and industries in which the Target operates[...]"
Source
PAR Technology Corporation / Holders
Securities Exchange Agreement
Transaction MAE (ability to consummate)
Mutual
2024
""Material Adverse Effect" means any change, effect, event, occurrence or development that would prevent, materially delay, or materially impair the Undersigned's or a Holder's (as applicable) ability to consummate the Exchange."
Source
Installed Building Products, Inc. / PJAM IBP Holdings, Inc.
Share Repurchase Agreement
Transaction MAE (delay or prevent)
Mutual
2025
""Material Adverse Effect" means any change, effect or circumstance that, individually or when taken together with all other such changes, effects or circumstances that occurred prior to the date of determination of the occurrence of the Material Adverse Effect, is or is reasonably likely to materially delay or prevent the consummation of the transaction contemplated by this Agreement."
Source
RaceTrac, Inc. / Potbelly Corporation
Agreement and Plan of Merger
Business-condition MAC + carve-out proviso
Mutual
2025
""Material Adverse Effect" means any change, event, effect, development, condition, occurrence or circumstance that, individually or in the aggregate, has a material adverse effect on the business, assets, properties, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole; provided that, none [of the following shall be taken into account][...]"
Source
Arrow Borrower 2025, Inc. / AvidXchange Holdings, Inc.
Agreement and Plan of Merger
Business-condition MAC + dual prong
Mutual
2025
"[...] had, has or would reasonably be expected to have a material adverse effect on the business, results of operations or condition (financial or otherwise) of the Acquired Companies, taken as a whole; provided, however, [carve-outs follow][...]"
Source
Negotiate
You want an exit
Keep the MAC standard broad and avoid a long list of carve-outs.
Insist on a disproportionate-effect exception so industry-wide shocks still count if they hit the target harder.
Cover prospects and forward-looking deterioration, not only historical results.
Make the MAC a clean closing condition and a bring-down of the key representations.
Resist carve-outs for failures to meet projections that mask an underlying decline.
You want certainty of closing
Carve out general economic, financial-market, and industry-wide conditions.
Carve out the deal's announcement, pandemics, regulatory and legal changes, and acts of war.
Require that any effect be durationally significant, not a short-term dip.
Limit or remove any reference to prospects.
Narrow the disproportionate-effect exception to clear, measurable disproportion.
A MAC clause is mostly carve-outs. Read those before you trust the standard.
Red Flags
A MAC standard with no disproportionate-effect exception, so an industry-wide shock that guts the target still does not count.
Carve-outs broad enough to excuse the very risks that threaten the business.
A "prospects" reference the target cannot control, inviting disputes over forward-looking guesses.
No durational element, letting a short-term blip trigger a walk-away, or such permanence that nothing qualifies.
A MAC defined only as ability to consummate, giving no protection against a deterioration in the business itself.
FAQs
Related Clauses
Representations and Warranties
A set of factual statements each party makes about itself and the deal, which the other party relies on and can sue over if they prove untrue.
Change of Control
A contractual provision that triggers rights or obligations when one party is acquired or undergoes a change in ownership.
Termination
A contractual provision that sets out how, when, and by whom a contract can be ended before its natural expiration.
Exclusivity
A contractual provision that restricts one or both parties from making the same kind of deal with anyone else for a defined period.
Indemnification
A contractual provision in which one party agrees to cover specified losses or third-party claims that the other party incurs.
This content is for informational purposes only and does not constitute legal advice.