VC & PE Glossary
What Is Material Adverse Change (MAC)?
Updated
Definition
Material adverse change (MAC) is a contract clause allowing a buyer to walk away from a deal if the target suffers a significant negative change in business, assets, or prospects before closing.
Useful for: Founders, Investors
Material adverse change (MAC) is a provision in acquisition and financing agreements that permits a party—usually the buyer—to terminate the transaction if the target experiences a materially harmful change before closing.
How it works
After signing a merger or purchase agreement, weeks or months may pass before closing while regulators approve and conditions are satisfied. During that gap, the seller must operate in the ordinary course.
If business deteriorates significantly—losing a top customer, a product failure, litigation, or accounting restatement—the buyer may claim a MAC occurred and refuse to close. Courts and negotiators distinguish:
- Company-specific MAC: Target uniquely harmed
- Excluded events: General economic downturns, industry-wide shocks, pandemics (often carved out post-2020)
- Disproportionate impact: Target hurt worse than peers
MAC definitions are heavily negotiated. Sellers push narrow MAC and broad carve-outs; buyers want flexibility when diligence surprises emerge late.
Why it matters
- Founders: Run the business as if the deal might fail until money hits the account. Major pivots or risky bets pre-close invite MAC claims.
- Investors: As buyers, MAC is downside protection; as sellers of portfolio companies, weak MAC language exposes LPs to retrade risk.
Common mistake
Assuming a signed LOI or merger agreement guarantees closing. MAC, financing conditions, and regulatory approval can still kill the deal.
Related ideas
See also merger, letter of intent, closing conditions, and ordinary course.
Related terms
- Letter of Intent — A letter of intent (LOI) is a non-binding or partially binding document that outlines the key terms of a proposed deal — acquisition, partnership, or major contract — before full definitive agreements are drafted.
- Merger — A merger combines two companies into one legal entity or parent structure—common exit path when a strategic or financial buyer acquires a startup via stock-for-stock or cash merger.
Common questions
Short answers for founders, LPs, and operators