Source: International Law Office, August 03 2016 | Contributed by Davis Polk & Wardwell LLP
Completion of acquisitions of private companies in the United States is almost universally conditional on the absence of a material adverse change (MAC). This is either through the inclusion of an explicit condition or a condition that a warranty confirming the absence of a MAC be true at completion.
Such conditionality is much less prevalent in private company acquisitions governed by English law. This is substantially attributable to a different paradigm regarding the allocation of risk. In the US market, until the time of completion, a purchaser is not considered to assume risk with respect to the target and so customarily protects its ability to walk away from a transaction that does not match the agreement struck with the seller. By contrast, in English law transactions a purchaser is regarded as assuming risk from the time of entering into the contract, subject only to legally required conditions.
However, in an increasingly international market influenced by US purchasers and parties drawing on experience in the US market, MAC conditions are more frequently seen in English law transactions and there have been a number of recent cases that assist in the drafting of such conditions.
Insofar as the purpose of a MAC condition is truly to protect a buyer against the unknown, ambiguity may prove to be the greatest ally.