A material adverse change clause permits a buyer to refuse to close where the target has suffered a material deterioration. Courts have set a demanding threshold and buyers rarely prevail.
Durational significance. The change must be consequential to the target’s earnings power over a commercially reasonable period measured in years, not months. A sharp but short decline generally does not qualify.
Carve-outs. Standard exclusions cover general economic conditions, industry conditions, changes in law or accounting, acts of war and pandemics, and effects of the transaction’s announcement. These allocate systematic risk to the buyer and company-specific risk to the seller.
Disproportionate effect. Most carve-outs are qualified so that a systematic event still counts to the extent it affects the target disproportionately relative to comparable businesses. That comparison is where the analysis usually lands, and it requires peer data.
Burden. On the party asserting the change, and it is a heavy one.
Practical consequence. A buyer with genuine concerns is usually better served by negotiating a price reduction than by declaring a material adverse change, because an unsuccessful assertion is itself a repudiation exposing the buyer to specific performance or damages.
Ordinary course covenants between signing and closing are frequently the stronger basis for a buyer seeking to exit.