Material Adverse Change

Last updated: March 22, 2024

What Does Material Adverse Change Mean?

A material adverse change (MAC) is a contingency provision specifically inserted in venture finance contracts, merger and acquisition agreements, and lending agreements that gives the acquiring or funding parties, buyers or sellers, the right to back out from implementing the agreement, or seek a change of conditions when there is a substantial adverse change in the company or its prospects or business condition affecting the parties to the agreement. This provision is also often called as material adverse event or material adverse effect.

This legal provision is important and essential because, between the date of the agreement and the final completion and closing of the complete transaction, considerable time can lapse due to regulatory procedures, and if any material changes occur meanwhile, making the funding or acquisition, material under rate contract, less attractive, the venture capital provider or the acquirer or any party to agreement, must have the right to back out from the agreement or seek appropriate revision of terms and conditions in some cases.


Divestopedia Explains Material Adverse Change

Material adverse change is applicable to substantial changes in business conditions or prospects of the firm being funded or acquired. Material changes may include any aspect of the firm as well as its subsidiaries, including:

  • Liabilities and assets
  • Properties such as intellectual properties and patents
  • Process operations
  • Market access including foreign markets
  • Licenses and leases, such as mining licenses, spectrum licenses and land leases

When an agreement is sought to be nullified on the basis of MAC provisions, in many cases the matter is taken to the courts and the final outcome depends on the interpretation of what constitutes a material adverse change.

A material adverse change clause is also used as a measure to cover risk in commercial agreements, such as long-term sale or purchase agreements for products such as power, natural gas and oils, where the adverse events occurring worldwide could affect any of the parties. The aggrieved parties can have a right to ask for changes in the prices or quantities or other conditions of sale/purchase, based on material adverse change provisions in the agreements.



Material Adverse Effect

Material Adverse Event

Share This Term

  • Facebook
  • LinkedIn
  • Twitter

Related Reading

Trending Articles

Go back to top