New York, NY. Dealmaking, particularly in the realm of very large transactions, has continued on a relatively brisk clip. This is according to the 15th annual Nixon Peabody M&A survey which studies material adverse change (MAC) clauses in acquisition agreements. The 2016 MAC Survey, released today, found that although the economy has shown many signs of marked improvement since the 2007-2008 financial crisis, the continued widespread inclusion of elaborate MAC clauses indicates the clauses have now become a permanent fixture in M&A deals.
Nixon Peabody’s analysis included the review of publicly filed acquisition agreements for transactions with values in excess of $100 million dates between June 1, 2015 and May 31, 2016. Nixon Peabody’s team of attorneys reviewed 278 agreements which included asset purchase, stock purchase, and merger agreements.
“This year’s survey suggests the uncertainty surrounding the swearing in of the first new president since the financial crisis is weighing on the minds of bidders, targets, and their counsel,” said Richard F. Langan, Jr., partner in Nixon Peabody’s Public Company Transactions practice. “The increase in the exception for MAC changes arising from larger political conditions seems likely attributable to questions surrounding the effects of Brexit and the U.S. election. We will continue to closely monitor how the dealmaking market responds to these, and other developments in the years to come.”
Exceptions for changes resulting in changes in political conditions
- “Changes in political conditions” appeared in 73% of the agreements surveyed this year, up for 66% last year.
- This exception appeared in 88% of the top 10 deals surveyed this year, a substantial increase compared to 79% last year.
Pro-bidder trends slowly level off
- Of the 278 agreements surveyed, 256 (92%) contained a material adverse change in the “business, operations, financial conditions of the Company”. This is slight increase from last year’s survey results (90%).
- Fewer agreements contained the pro-bidder “would reasonably be expected to” language in the MAC definition, appearing in only 54% of deals this time period versus 61% in the previous survey.
- Usage of pro-bidder “disproportionately affect” language in the MAC exceptions declined this year to 80%.
Increase in the number of exceptions to MAC definition
- This year’s survey identified 12.6 exceptions per agreements for all agreements reviewed and approximately 14.7 exceptions per agreement for the top 100 deals.
- Last year, the average number of exceptions per agreement was 12 for all agreements reviewed and 14.5 for the top 100 deals.
- This uniformity, and the gradual increase in number of MAC exceptions in the top 100 deals, is perhaps a sign of risk-adverse approaches by both bidders and targets as both sides may prefer conforming MAC clauses to market standards to negotiating unique formulations.