New York, NY. 2016 will bring an improved appetite for dealmaking according to the latest Nixon Peabody M&A survey. Companies are continuing to sit on record amounts of money; financing remains inexpensive and plentiful; and the U.S. dollar’s strength is at historic levels. These are some of the findings from the results of the global law firm’s 14th annual Material Adverse Change (MAC) Survey.
“With favorable conditions and the effects of a strengthening economy coupled with immense interest in acquisitions and mergers, we’re seeing more growth opportunities actively pursued,” said Richard F. Langan, Jr., Nixon Peabody corporate partner and creator of the MAC Survey. “Our annual survey looks deeper into the dynamics between bidders and targets, and during another year full of headline making deals, we’re confident that we will see pro-bidder trends continue in the coming year.”
A MAC clause allows bidders and targets to allocate transaction risks during the significant period between deal execution and completion. For fourteen years, Nixon Peabody has tracked the evaluation of these clauses, which echo market, societal and economic shifts.
90% of the 355 agreements surveyed contained a material adverse change in the “business, operations, financial conditions of the company” as a definitional element. Among the top 100 deals surveyed for this year’s report, just 3% lacked a MAC closing condition.
There’s a continued increase in the use of the pro-bidder “would reasonably be expected to” language in the MAC definition. It appeared in 61% of the deals reviewed this year—a 5% increase over last year. By defining a material adverse effect to involve circumstances that “would reasonably be expected to” lead to a MAC, a bidder introduces a forward-looking feature to the definition, allowing it to adopt a more lenient approach during negotiations.
Like the definitional elements, the exclusionary elements also suggest a continuation of pro-bidder trends. This year’s data indicates an across-the-board decrease in the use of exclusions to the MAC clause.