Page 50 - M & A Disputes

ly, the seller may engage a practitioner to analyze the buyer’s claims and potentially refute that a MAC
occurred.

The analysis of whether a MAC has occurred will be driven by the specific provisions spelled out in
each particular contract and the relevant facts and circumstances. Nevertheless, courts follow certain
general approaches to interpreting the scope and meaning of such clauses, and courts will often look to
the impact of the alleged MAC on the operations of the target company, the projected duration of the
adverse effect, and how the target company was affected by the downturn relative to the industry. Gen-
erally, determining whether a MAC occurred is a question of fact requiring expert testimony from the
practitioner who may be engaged by the buyer (to demonstrate that a MAC occurred) or seller (to ana-
lyze and refute the buyer’s claims that a MAC occurred). The transaction parties may retain practitioners
in a consulting capacity and use those practitioners or others to ultimately render expert testimony.

Definition of a MAC

MAC clauses protect buyers from unpredictable adverse business or economic developments; therefore,
it is no surprise that buyers prefer broad MAC definitions that create broad protections. Sellers typically
prefer narrow definitions that limit the buyer’s ability to withdraw from the transaction. Narrow MAC
definitions increase the likelihood of closing the transaction.

The definition of what constitutes a MAC per the agreement is a point of negotiation between the trans-
action parties. Generally, the MAC definition encompasses any event, change, or occurrence that, indi-
vidually or together with any other event, change, or occurrence, has fn 4 an MAE on the financial posi-
tion, business, properties, assets, or results of operations of the company and its subsidiaries taken as a
whole. Depending on the contract, the MAC definition may vary to cover adverse events affecting
whole industries, such as a regulatory change or systemic downturn, or be limited to adverse events that
disproportionately affect only the target, such as the loss of a major customer. MAC clauses are general-
ly viewed as a backstop to more specific representations and warranties about the target’s ongoing oper-
ations, management, and so on.

The time frame covered by the seller’s MAC representation generally begins with the merger agreement
signing and ends with the transaction closing. In some instances, the two sides may dispute whether the
alleged MAC occurred (or began to occur) prior to the defined time frame. Further, if the MAC event
occurred before the merger agreement signing, the buyer may bring claims of material misrepresenta-
tion, mistake, or fraud if the seller negligently or willfully withheld material information concerning the
significant downturn in order to induce the buyer to sign the merger agreement.

The buyer may also be required to demonstrate that the impact of the MAC has a long-term impact on
the operations and prospects of the target — typically measured in years, not months (that is, the down-
turn should be more than a temporary "blip" in the target’s performance). The analysis of the impact of a
MAC is both forward and backward looking. Note, however, that the party invoking the MAC clause is
not generally expected to show that the alleged MAC has already existed for a lengthy time period. Ra-
ther, that party generally should show that the MAC event had such an impact on the seller’s business
that the negative effects from that event will likely last long into the future. Additionally, a court will

fn 4 Also, "would have," "would reasonably be likely to have," "would be reasonably expected to have," "could reasonably be ex-
pected to have," or "insofar as can reasonably be foreseen is likely to result in."

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