Buzz Archive:
The MAC - MAE Checklist

by Joseph W. Bartlett, Of Counsel, Sullivan & Worcester LLP and Founder of VCExperts.com, 10/20/2009

Herewith some thoughts prompted by David Marcus' excellent piece on the now-notorious material adverse effect clause (the "walk right") in buyout transactions, in The Deal, "In Praise of Ambiguity." ^[1] The landscape for Marcus' note is the extraordinary frequency of litigation involving conflicting interpretations of the material adverse change or effect clause in agreements between public companies (targets or the "sell side") being taken private by a buyout fund (the "buy side"). Some contingency arises between signing and closing and the buy side claims it has a right to walk away without penalty … the material adverse effect has occurred. The sell side says "no." Huge dollars are involved. The language in the contract is opaque … it does not define the qualifying events except by using the term "material." And the questions, asked by e.g., Cathy Reese and me (joebartlettvc.com/node/53), is why hasn't more work been put into defining and cataloging potential events when the deal was negotiated?

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