January 19, 2021

2020 MAC Survey

Nixon Peabody recently posted its 2020 MAC Survey, and the results suggest that the terms of MAC clauses continue to move in a buyer-friendly direction. Here’s an excerpt:

Of the 220 agreements surveyed, 97% contained a material adverse change in the “business, operations, financial conditions of the Company” as a definitional element. This is essentially the same percentage as contained this definitional element last year, when this element appeared in 98% of all agreements. Meanwhile, 8% of the 220 acquisition agreements reviewed this year lacked a MAC closing condition, compared to none reported last year, 7% reported in the 2017 survey, and 3% reported in the 2016 survey. These trends demonstrate the universal acceptance of MAC clauses in M&A documents although the use of a MAC closing condition tends to vary slightly from year-to-year.

This year’s results indicate a continuation of the shift toward a more objective test in determining whether a change constitutes a MAC. More agreements contained the pro-bidder “would reasonably be expected to” language in the MAC definition—it appeared in 65% of the deals reviewed this year, while appearing in 74% of all deals reviewed in 2019. This language appeared in 62% of all deals reviewed in 2017, 54% of all deals reviewed in 2016, 61% of deals reviewed in 2015, 56% in 2014, 53% in 2013, 42% in 2012, and just 29% in 2011.

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.

So what about the pandemic? The survey says that a pandemic or COVID-19 carve appeared in 25% of all the agreements reviewed. The survey acknowledges that these results may have understated dealmakers’ concerns about the pandemic, because only 70 of the 220 agreements included in the survey the were entered into on or after February 1, 2020.

It’s worth noting that in AB Stable, Vice Chancellor Laster held that a MAC carve-out based on “calamities” was broad enough to cover the pandemic.  The survey found that 46% of all deals included a carve for a national calamity and 26% included a carve for an international calamity directly or indirectly involving the United States.

John Jenkins