March 8, 2022
PE Secondaries: MAC Clauses & Ordinary Course Covenants
Ropes & Gray recently did a podcast on the use of MAC clauses and ordinary course covenants in private equity secondaries transactions. While MAC clauses are relatively uncommon in these deals, in this excerpt from the transcript partner Isabel Dische discusses where those provisions typically appear and how their use has been on the rise due to recent events in Ukraine:
Very briefly, material adverse change (or MAC) clauses arise in secondaries transaction agreements in two typical ways. First, and more common, would be to include a MAC qualifier on certain of the representations within the agreement. For example, a representation about an underlying portfolio company might be read so that the portfolio company is not in default under any of its contractual arrangements, except for such defaults as would not individually, or in the aggregate, cause a MAC.
Less common would be to include a MAC closing condition for a deal, expressly saying that the buyer’s performance obligations are conditioned upon no material adverse change having occurred. The usage of MAC clauses in this context has been fairly uncommon in recent years, but in the past two months, we have seen these clauses creep into a number of letters of intent and term sheets for deals, as buyers try to protect themselves against market uncertainty. And in the past couple of weeks, we’ve seen increasing questions around this. It is worth stressing that we are still seeing MAC clauses in only a small minority of deals, but it is a trend that seems to have been accelerating along with events in Ukraine.
– John Jenkins