New York, NY. Despite the global coronavirus pandemic and a backdrop of economic and political volatility in the U.S. and abroad, mergers and acquisitions continue to be a favored approach to growth—and material adverse change (MAC) clauses continue to play an important role in M&A agreements.
This is according to Nixon Peabody’s 18th MAC Survey, which analyzes MAC clauses in M&A agreements—clauses relating to political environment, international calamity, and the economy, among others—and serves as a pulse check on the market’s response to social, economic, and geopolitical shifts affecting the deal-making environment. The U.S. presidential election, cross-border tariffs, Brexit, and, of course, COVID-19, are among the sources of uncertainty that influence the use of MAC clauses.
“In spite of COVID-19, 2020 was the sixth year in a row where we’ve seen deal volume exceed $3 trillion,” said Richard F. Langan, lead author of Nixon Peabody’s MAC Survey and a partner in the firm’s Corporate practice. “U.S. companies saw an increase in available cash due to tax reform, which they’ve smartly deployed in response to competitive pressures and disruptions in the marketplace. Our results also show a subtle shift favoring the buy-side relating to pro-bidder clauses, suggesting increased caution by bidders during the pandemic.”
Nixon Peabody’s analysis included the review of publicly filed acquisition agreements for transactions with values in excess of $100 million dated between June 1, 2019, and May 31, 2020. Our firm’s team of corporate attorneys reviewed 220 agreements, which included asset purchase, stock purchase, and merger agreements. The surveyed transactions represent an expansive array of industries—including pharmaceuticals, energy, entertainment, and software, among others—and range in value from $100 million to more than $26 billion. The team also analyzed 88 deals in the sample valued $1 billion or more and compared them to all deals reviewed during the period examined, and found MAC exceptions typically appeared at a higher rate.
For the first time in our survey’s long history, whose inaugural year encompasses the tragic events of September 11 and spans the 2008 Great Recession, our MAC Survey tracked the inclusion of exceptions relating to pandemics or COVID-19, beginning in February 2020 when COVID-19 began garnering heightened attention.
“Since the onset of the pandemic, we’ve seen notable disputes and litigation arise invoking MAC clauses to either renegotiate deal pricing and terms or walk away from the deal,” Langan said. “This smaller sample size of transactions entered into during the pandemic may understate the concern of dealmakers about the potential impact of the risk of pandemic or COVID-19, and we will continue to monitor the use of this clause in the year ahead.”