December 19, 2017

2017 MAC Survey

Nixon Peabody recently posted its 2017 MAC Survey. Here’s an excerpt:

Of the 203 agreements surveyed, 181 (89%) contained a material adverse change in the “business, operations, financial conditions of the Company” as a definitional element. This is a slight decrease from last year’s survey, when this element appeared in 92% of all agreements. Meanwhile, just 15 of the acquisition agreements reviewed this year lacked a MAC closing condition, representing approximately 7% of all agreements reviewed, compared to 3% reported in the 2016 survey and 5% reported in the 2015 survey. We note that each of the deals valued at $1 billion or more in this year’s survey contained a MAC condition.

While last year’s survey suggested that recent pro-bidder trends could be leveling off, the small shift in this year’s results may tell a different story. More agreements contained the pro-bidder “would reasonably be expected to” language in the MAC definition – it appeared in 62% of the deals reviewed this year, while appearing in 54% of all deals reviewed last year. This language appeared in 61% of all deals reviewed in 2015, 56% of deals reviewed in 2014, 53% in 2013, 42% in 2012, 29% in 2011 and 13% in 2010. By defining a material adverse effect to involve circumstances that “would reasonably be expected to” lead to a MAC, a bidder introduces a forward-looking feature to the definition, allowing it to adopt a more lenient approach during negotiations over whether a material adverse change in the target’s prospects needs to be covered by the definition.

However, we also saw a slight decline in the usage of pro-bidder “disproportionately affect” language in the MAC exceptions during this year’s surveyed period. Such language appeared in 76% of the deals reviewed this year, while appearing in 81% of deals reviewed last year and 83% and 88% of deals reviewed the two years before—which evidenced a significant increase over the 73% found in our 2011 and 2012 surveys and the 48% and 40% found in our 2009 and 2010 surveys, respectively. “Disproportionately affect” language carves out exceptions from the MAC clause to ensure that bidders have the protections of the MAC clause in the event the target company suffers more greatly than its peers from a specified event, such as a general economic or industry downturn.

John Jenkins