Material adverse change: when will a change be material?

The High Court has set out some useful guidance on how to assess whether there has been a breach of a ‘material adverse change’ (MAC) provision in a share sale agreement.

MAC provisions

MAC provisions are designed to protect a buyer from a significant change in the commercial position of a transaction. They can take various different forms, such as:

• a clause giving the buyer the ability to ‘walk away’ from a deal if there is a MAC in the target between signing and closing; or
• a warranty giving the buyer the right to claim compensation if there is a MAC between the target's financial position at a particular date (often the date of its last audited accounts) and its actual position on signing.

To bring a successful claim for breach of a MAC provision the buyer will need to be able to show not only that there has been a change in the relevant metric but also that any such change is material.