Conditions precedent and the MAC clause in M&A
In M&A operations, conditions precedent and the MAC clause govern the interval between signing and closing. They help align risks and expectations between buyer and seller.
What conditions precedent are
Conditions precedent are requirements that must be met between the signing of the contract and the closing of the operation. As long as they are not met, the deal generally does not close, which gives the parties security during the transition period.
Common examples
The conditions vary according to the operation, but they usually include:
- Corporate and third-party approvals
- Obtaining regulatory authorizations, where applicable
- Confirmation of the due diligence findings
- Absence of relevant events that alter the deal
The MAC clause
The MAC clause, an acronym for material adverse change, allows the operation to be revisited or not completed in the face of an event that significantly affects the deal between signing and closing. Its wording defines the scope and the exceptions.
Why the wording matters
The scope of these clauses depends directly on how they are written. Generic definitions may give rise to disputes over what constitutes a relevant event, which is why the wording usually requires precision and alignment between the parties.
Frequently asked questions
Do conditions precedent lock up the deal forever?
No. They usually have a deadline for fulfillment. If they are not met within that period, the contract generally provides for consequences, such as termination of the operation.
Can the MAC clause be triggered for any reason?
No. As a rule, it requires a relevant adverse event and observes the exceptions set out in the contract, whose classification depends on the wording and on the specific case.
Need guidance on this topic?
This article is informational. For guidance on your specific case, talk to our team.