A material adverse change or effect clause allows a buyer to refuse to close if the target’s condition deteriorates materially between signing and closing. It is heavily negotiated and, in practice, extremely difficult to rely on.
The bar is high. Courts generally require a change that is durationally significant — measured in years rather than quarters — and that substantially threatens the earnings potential of the business viewed from the perspective of a long-term acquirer. A bad quarter, a lost customer or a fall in the market usually will not do.
The exceptions swallow much of it. Standard carve-outs exclude changes arising from general economic or industry conditions, changes in law or accounting standards, the announcement of the transaction itself, and actions taken at the buyer’s request. What remains is typically a change specific to the target and disproportionate to its peers — and that qualifier does a great deal of work.
Burden. It generally rests on the party asserting the MAC, which is the buyer seeking to walk.
What it is actually for. Leverage. A credible MAC argument reopens price far more often than it terminates a deal, and most disputes settle on revised terms rather than being decided.
Drafting. Define the measurement, address whether forward-looking effects count, and be explicit about which risks each side bears. Silence is resolved against the party trying to escape.