A material adverse change (MAC) is a commonly used term in merger and acquisition agreements, both internationally and in South Africa. It refers to a change or occurrence that, if it happens, could have a significant negative impact on one or more of the parties involved in the transaction, particularly the company being acquired.
The primary purpose of MAC clauses in M&A agreements is to safeguard the buyer against unforeseen detrimental changes. These clauses give the buyer and sometimes other parties the option to withdraw from the deal if the terms or prevailing economic conditions have substantially worsened during the interim period (i.e. between the signing of the agreement and the completion of the transaction).
In order to prove the occurrence of a MAC event, cumulative evidence is generally required. Where the acquiree company’s profits are concerned, there should be clear indications of a significant and comprehensive decline in the acquiree company's profits. Additionally, the event relied upon should have a prolonged negative impact on the acquiree's value and/or its potential profitability.