MACS IN ENGLISH LAW M&A TRANSACTIONS: POST COVID-19
Prior to coronavirus (COVID-19), grounds for terminating M&A agreements would either be by invoking a material adverse effect (MAE) termination right or by arguing that there was a breach of the agreement (i.e., breach of pre-completion conduct undertakings or breach of warranty).
The COVID-19 outbreak has seen significant change to the negotiation of various terms, including material adverse change (MAC) clauses, break fees and other similar provisions. MAC clauses often enjoy a revival at times of crisis, as they enable buyers to cease their agreements if certain events affecting the target business occur prior to completion.
Corporate transactions in the post COVID-19 landscape will need to reflect the effects of the pandemic, of which there have been many. Although it is important to include certain contractual provisions in M&A contracts, such as MAC clauses, there is no guarantee that a buyer has a right to terminate an acquisition agreement on grounds that there has been a MAC in the target.
Generally, there is a high burden of proving that a MAC has occurred within the meaning of the provision. This is as a result of the limited judicial consideration by English courts of MAC clauses in a private M&A context. In a 2020 UK judgement of the case Travelport Ltd &12 Ors v Wex Inc and Adam Rhys Olding &112 Ors v Wex Inc (2020), the commercial court considered the extent to which the COVID-19 pandemic constitutes a MAE in a sale and purchase agreement (SPA).
Jul-Sep 2021 Issue
Shoosmiths