What It Does
A material adverse change clause, also called a material adverse effect (MAE) clause, defines the kind of serious, durationally significant deterioration in a target's business, or in a party's ability to close, that lets the other side refuse to complete a deal or terminate. It sits at the center of M&A and financing agreements as a closing condition and a bring-down test for the representations. Its meaning lives in the carve-outs: changes from the general economy, the industry, or the deal's announcement usually do not count, unless they hit the target disproportionately. Delaware courts read MAC clauses narrowly and rarely let a buyer walk.
Lets a buyer or lender refuse to close, or terminate, on a serious adverse change
Functions as a closing condition and as the bring-down test for the representations
Defines materiality and, in most deals, requires a durationally significant effect
Carves out general economic, industry-wide, and deal-announcement changes
Often pulls those back in through a disproportionate-effect exception
Buyers rarely win MAC walk-away disputes, so the negotiation has shifted to the precise carve-outs and the disproportionate-effect exception rather than the headline standard.
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[...]"
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."
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."
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][...]"
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][...]"
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
This content is for informational purposes only and does not constitute legal advice.
