Signing a purchase agreement feels like the finish line, but for most business sales it is closer to the starting gun for a second phase: the gap between signing and closing, which can run anywhere from a few weeks to several months while financing closes, regulatory approvals come through, and third-party consents get collected. Buried in that agreement is a clause most sellers barely notice at signing and then think about constantly during the gap: the material adverse change clause, often shortened to MAC.
This article is an educational overview of the topics worth raising with your legal and transaction advisors about MAC clauses before you sign. It does not provide legal, tax, accounting, or financial advice; every decision discussed here should be reviewed with appropriately licensed professionals familiar with your specific transaction.
Topic 1: What a MAC Clause Actually Does
A MAC clause gives the buyer a contractual right to walk away from the deal, without penalty, if something defined as a "material adverse change" happens to the business between signing and closing. It functions as a condition to the buyer's obligation to close, not as a standalone termination trigger the buyer can invoke at will. If the seller's business suffers a change severe enough to meet the agreed definition, the buyer's obligation to close simply does not arise.
The practical effect is that a seller who has signed a deal has not actually locked in a sale. The business still has to perform reasonably normally through closing, and the MAC clause is the mechanism that measures whether it did. The Wikipedia entry on material adverse change is a reasonable starting reference for the general concept before a substantive conversation with counsel.
Topic 2: The Definition Is Where the Real Negotiation Happens
The words "material adverse change" carry almost no fixed legal meaning on their own. What matters is the specific, negotiated definition written into the purchase agreement, which typically runs several paragraphs and defines both what counts as a change and what is explicitly excluded from counting.
Topics to raise with your M&A counsel: whether the definition requires a change to be "material" in isolation or "material and adverse" as a combined test, whether it measures impact on the business, on financial condition, on results of operations, or all three, and whether the definition includes a duration requirement (a change has to persist for some period, not just appear briefly) or a magnitude threshold expressed in specific terms.
Topic 3: Standard Carve-Outs Sellers Should Expect
A well-negotiated MAC definition excludes a list of categories from counting as a material adverse change, even if they affect the business, because they are outside the seller's control or affect the industry broadly rather than the specific company. Common carve-outs include general economic or market conditions, industry-wide conditions that do not disproportionately affect the target business, changes in law or accounting standards, acts of war or terrorism, and the announcement or pendency of the transaction itself.
That last carve-out matters more than sellers often realize: without it, a buyer could argue that the deal's own announcement, which can spook customers or employees, itself constitutes a material adverse change, effectively giving the buyer an exit right triggered by nothing more than the deal becoming public. Reviewing which carve-outs are present, which are missing, and whether any carve-outs are themselves qualified by a "disproportionate effect" exception is a topic worth walking through carefully with counsel.
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Topic 4: How Courts Have Actually Interpreted These Clauses
MAC clauses are litigated far less often than their prominence in deal documents would suggest, and buyers who invoke them to walk away from a signed deal have historically had a difficult time prevailing in court. Delaware, where a large share of significant M&A disputes are litigated because so many companies are incorporated there, has set a demanding standard: courts have generally required a change that is not just significant but durationally significant, threatening the target's long-term earnings power in a way that is unlikely to be temporary.
This judicial track record is a topic worth discussing with counsel specifically because it shapes negotiating leverage on both sides. A seller with counsel who understands how narrowly these clauses have actually been enforced is in a different negotiating position than one who treats the clause as boilerplate. The Delaware courts' published opinions are the primary source for this case law, and your M&A attorney should be able to speak to how recent decisions inform the specific language being proposed in your agreement.
Topic 5: The Overlap With Interim Operating Covenants
A MAC clause does not operate alone. It sits alongside interim operating covenants that require the seller to run the business "in the ordinary course" between signing and closing. The two provisions interact: a breach of an operating covenant can sometimes be argued as evidence supporting a MAC claim, even if the underlying change would not independently meet the MAC definition.
Topics for advisor review: how tightly the ordinary-course covenant is drafted, what specific actions are carved out as permitted regardless of the ordinary-course standard, and whether the agreement clearly separates a covenant breach (which typically has its own remedy) from a MAC determination (which affects the closing obligation itself). Conflating the two in negotiation can leave a seller more exposed than either provision would suggest in isolation.
Topic 6: General vs. Industry-Specific MAC Formulations
Some MAC definitions are written broadly, applying a single standard across "the business" as a whole. Others are written with industry-specific carve-outs and thresholds tailored to how that particular sector tends to experience volatility, a technology company's typical revenue concentration risk looks different from a manufacturer's typical supply-chain exposure, for instance.
A generic, off-the-shelf MAC definition borrowed from a template deal in an unrelated industry can leave gaps that matter for your specific business. Raising this with counsel who has closed deals in your industry, not just generalist M&A counsel, is a topic worth prioritizing early rather than discovering the gap after signing.
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Topic 7: MAC Clauses and Financing Contingencies
In deals where the buyer is financing part of the purchase price with debt, the interaction between a MAC clause and the buyer's financing commitment is a topic worth understanding clearly. Some financing commitment letters include their own MAC-style conditions that mirror or diverge from the purchase agreement's definition, creating a scenario where a lender could decline to fund even if the buyer's obligation to close under the purchase agreement technically survives.
Topics to raise with your transaction advisor and counsel: whether the buyer's financing commitment has been reviewed alongside the purchase agreement's MAC language, whether the two definitions are aligned, and what happens contractually if the financing falls through for reasons connected to, but not identical to, the purchase agreement's own MAC definition.
Topic 8: Timing and Negotiating Leverage
The leverage to negotiate favorable MAC language is highest before signing and drops sharply afterward. Once a deal is signed, a seller has limited ability to revisit the MAC definition even if a specific scenario during the interim period reveals a gap in the drafting. This makes the pre-signing period the point where advisor coordination pays off most, not the point where sellers are typically most focused on legal mechanics rather than the headline price.
Topics worth discussing with your deal team before signing: how the length of the expected gap between signing and closing affects MAC risk (a longer gap generally means more exposure to something happening that could be characterized as a material change), whether a reverse termination fee or other mechanism offsets the asymmetry between the buyer's MAC-based exit right and the seller's more limited options, and whether the overall risk allocation in the agreement reflects the actual likelihood of disruption in your specific industry and timeline.
What Good Advisor Coordination Looks Like Here
MAC clause language is not a section most business owners can evaluate on their own, and it is also not a section where a general corporate attorney without transaction-specific experience necessarily has the pattern recognition to flag what is missing. The roster worth having in place typically includes M&A-experienced legal counsel, a transaction advisor or investment banker who has seen how MAC disputes actually play out across comparable deals, and your existing financial advisor for how deal risk factors into your broader planning.
For owners who do not already have a roster of transaction-experienced advisors, the search process itself is worth approaching deliberately. Capivise's questions-to-ask-an-advisor framework is a starting point for the kind of screening questions that distinguish deal-experienced counsel from general practice attorneys, and Capivise's advisor matching service can help connect business owners preparing for a sale with vetted, transaction-focused advisors. You can review the business sale advisor track for more on how that coordination is structured, or start from the Capivise homepage for the broader picture.
Closing Thought
A MAC clause rarely gets invoked, and when it is invoked, courts have historically set a high bar for buyers trying to use it to exit a signed deal. That track record does not make the clause unimportant. It is precisely the provision that determines how much real security a signed agreement provides during the gap before closing, and it deserves a careful read with experienced counsel rather than a quick skim on the assumption that "material adverse change" means something obvious.
The topics above are not a substitute for advice from licensed professionals familiar with your specific transaction. They are a starting checklist for the conversation worth having with your advisors before you sign, while there is still room to negotiate the language rather than simply live with it.
Further background on how legal terms like this one are defined and applied is available through the Cornell Legal Information Institute, and the American Bar Association publishes model transaction agreement language that can serve as a useful baseline reference when your counsel walks you through the specific draft in front of you. For deals involving publicly reporting parties or public disclosure obligations, the Securities and Exchange Commission also publishes relevant guidance on material information standards that can inform how "material" is being defined in your specific context.
