In many transactions, signing and completion do not fall on the same day. Weeks or months can lie between signing and closing while merger clearances are obtained, financing is finalised or conditions are met. During this interim phase the buyer carries a risk: what if the target or its market deteriorates dramatically before the deal even completes? The MAC clause closes precisely this gap.
Why the signing-closing gap is a risk
The difference between signing and closing is fundamental in M&A. At signing the purchase agreement is signed bindingly; at closing the company actually changes hands and the price is paid. In between lies the interim period. How these phases interact in the overall process is explained in our article on the phases of the M&A process up to closing.
A lot can happen in this interim period: a major customer leaves, a plant burns down, an industry collapses. The buyer has signed but not yet paid and faces the question of whether to acquire a company that is no longer what it chose. Without contractual protection it would be bound. The MAC clause grants an exit or adjustment right.
What the MAC clause governs
The MAC clause, from Material Adverse Change, allows the buyer to withdraw or refuse completion if a materially adverse event occurs between signing and closing. The heart of every negotiation lies in defining what materially adverse means. Too broad gives the buyer a loophole; too narrow renders the clause worthless.
Quantitative thresholds are common, such as an EBITDA decline by a set percentage or a defined revenue drop over a fixed period. Qualitative definitions target sustained impairment of earnings or assets. The quantitative variant is easier to prove in dispute and therefore preferable in the mid-market.
Carve-outs: what the MAC clause excludes
Mirroring the buyer's interest, the seller seeks to limit the clause through exceptions, so-called carve-outs. Usually excluded are general market changes, macroeconomic developments, legislative changes and industry-wide effects affecting all competitors alike. The buyer should only be protected against company-specific deterioration, not the general market risk it bears anyway.
Often a carve-out is combined with a disproportionality clause: a general market effect only triggers the MAC clause if it hits the target disproportionately. This fine-tuning is negotiation-intensive and should align closely with the warranties and indemnities. Experienced closing support ensures the MAC clause, closing conditions and warranty catalogue mesh without contradiction.
Negotiation practice in the mid-market
In mid-market practice the MAC clause is often narrower than in large private equity deals. Sellers frequently prevail because an overly broad exit right undermines the transaction certainty family-owned sellers need. Buyers accept this if the overall risk allocation, via price adjustment and warranties, is right. We always negotiate the MAC clause in the context of the entire contract architecture within our M&A advisory, never as a stand-alone item.
FAQ
Does every deal need a MAC clause? No. If signing and closing occur on the same day there is no interim gap and the clause is dispensable.
Who benefits from the MAC clause? Primarily the buyer, as it grants an exit or adjustment right on material deterioration. The seller tries to narrow it through carve-outs.
How is materiality defined? Best quantitatively via clear thresholds such as a percentage EBITDA decline. Qualitative definitions are harder to prove in dispute.