Material adverse change
Can the buyer walk away before closing?
Also called: MAC · MAE
Favours the drafting party
What it does
Allocates the risk of deterioration in the target during the gap between signing and closing, by making the absence of a material adverse effect a condition to the buyer's obligation to close.
Why it matters
In practice a general MAC is difficult to invoke — courts have set a high bar — but its real work is done in negotiation. The carve-outs decide who bears industry-wide, market-wide and legal-change risk, which is where the actual allocation happens.
What to watch for
- Few or no carve-outs, so ordinary market movement counts
- Carve-outs subject to a disproportionate-effect qualifier that swallows them back
- Forward-looking language, capturing anything that 'could reasonably be expected to' have an effect
- Prospects included alongside business, results and condition
What to ask for
- Carve-outs for general economic and industry conditions, changes in law or accounting, and effects of announcing the deal itself
- Removal of 'prospects' from the definition
- A quantitative threshold, where the parties can agree one
- Symmetry, where both sides have closing conditions
How common is it
Documents filed with the SEC containing the exact phrase “material adverse effect”.
Too common to count. This phrase exceeds 10,000 filed documents in every year measured, which is where EDGAR stops counting. A censored year sits at the maximum by definition, so a chart drawn from this would have its scale anchored to a lower bound. The figures are in the table below instead.
| Year | Documents |
|---|---|
| 2019 | 10,000+ |
| 2020 | 10,000+ |
| 2021 | 10,000+ |
| 2022 | 10,000+ |
| 2023 | 10,000+ |
| 2024 | 10,000+ |
| 2025 | 10,000+ |
Real filings using it
- CANADIAN PACIFIC RAILWAY LTD/CN (CP) (CIK 0000016875) — 8-K, 2023-03-20
- Get Real USA, Inc. (GTRL) (CIK 0001762546) — 1-A, 2023-02-24
- Get Real USA, Inc. (GTRL) (CIK 0001762546) — 1-A, 2023-03-13
Source: SEC EDGAR full-text search (efts.sec.gov). Retrieved 2026-08-30. Counts are filed documents matching an exact phrase, not deals, and EDGAR indexes public-company filings — read these as public-company practice, not as evidence of what private mid-market agreements contain.
What usually gets agreed
A carve-out list qualified by disproportionate effect is close to standard and is usually where this lands. Removing 'prospects' is a routine ask. Quantified thresholds remain uncommon outside larger deals.
Related
- Indemnity cap and basket — The floor a claim must clear before the buyer can recover, and the ceiling on total recovery.