Recent dramatic changes in the availability and cost of debt financing and other market conditions have caused an increasing number of buyers to invoke clauses in acquisition agreements intended to permit a buyer to terminate a pending acquisition.  Most often, buyers are relying on “Material Adverse Change” or “Material Adverse Effect” clauses (“MAC/MAE clauses”) in their acquisition agreements as a means to exit deals, although in the just-decided United Rentals, Inc. v. Ram Holdings, Inc., Dec. 21, 2007 Opinion, Civil Action No. 3360-CC (Del. Ch. 2007), the Delaware Chancery Court ruled that a Cerberus acquisition subsidiary “only” had to pay a $100 million termination fee pursuant to the terms of the acquisition agreement, instead of being compelled to close the pending acquisition. 

MAC/MAE clauses generally define the circumstances that allow a buyer to terminate an otherwise binding obligation to close an acquisition as a consequence of some event impacting the target and occurring after the signing of the acquisition agreement.  The differences between MAC or MAE clauses are not substantial.  Often, the definition of either clause is drafted to include all changes, events and effects.  Generally, a clause that is triggered by an “effect” sweeps broader than a clause triggered by a “change” because “change,” raises questions of the buyer’s prior awareness. 

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