Material Adverse Change clause

A Material Adverse Change (MAC) clause, also called a Material Adverse Effect (MAE) clause, is a contractual provision in an SPA allowing the buyer to withdraw from, renegotiate or refuse to close a transaction if, between signing and closing, an event occurs that has or is reasonably likely to have a material adverse effect on the target's business, financial condition, results of operations or prospects. It is the buyer's last-resort protection against catastrophic deterioration of the target between signing and closing, and one of the most heavily negotiated provisions in M&A transactions.

‍

The key issue is the definition itself: French and Swiss M&A practice typically includes carve-outs excluding general economic or market conditions, industry-wide downturns, changes in applicable law, force majeure events and the consequences of the transaction announcement itself. Courts interpret MAC clauses narrowly, requiring events that are substantial, long-lasting and specific to the target rather than market-wide: a high legal threshold that has rarely been successfully invoked in European courts. The COVID-19 pandemic tested MAC clauses extensively: most European courts found that pandemic-related downturns fell within the general market conditions carve-out and did not constitute a MAC.

‍

Example: a MAC clause in a CHF 18.0 million acquisition explicitly excludes general economic downturns, currency fluctuations and sector-wide regulatory changes, while covering: loss of a client representing more than 20% of revenue, a major uninsured casualty loss, or criminal indictment of a key director. This balanced drafting protects the buyer from target-specific deterioration while avoiding easy invocation for market-wide events and keeping the clause from becoming an illusory right.

‍

At Hectelion, we advise on MAC clause drafting and negotiation to balance meaningful buyer protection with seller certainty in Franco-Swiss M&A transactions.