#Hexio level 48 mac#
Duo Bank of Canada 2(the ‘ Fairstone case’) provides a topical discussion of what a party must establish to successfully rely on a MAC clause. To this end, the relatively recent matter of Fairstone Financial Holdings Inc. Those authorities will obviously not be binding or formally persuasive, but to ignore the thinking of the leading forum for the consideration of these clauses, a forum which is both sophisticated and a common law jurisdiction, would plainly be imprudent – as well as discourteous to that court.” “While I would agree that the cases are not admissible as factual matrix, this is just the kind of situation where a review of the authorities from a foreign court is called for. In light of the above, Australian dealmakers will find it useful to look abroad to iron-clad their MAC clauses to reduce the risk of subjective interpretation, and thus litigation.Īs stated by Justice Cockerill in the English Wex case 1 Furthermore, it is likely that the target or seller’s initial response will be to counter sue for specific performance of the contract as well as seek damages for repudiation of the agreement. On the flipside, if the acquirer loses a MAC dispute, it is forced to merge with a company that it has determined and publicly declared to be worth ‘less’ than it originally envisioned – raising similar reputational and market price consequences. This could have a negative flow on effect on its market value as well as possibly raise solvency concerns. For the target, losing a dispute relating to a MAC clause in a public setting results in a public determination that the company has actually suffered a ‘materially’ adverse blow to its value. To the contrary, there is a dearth of case law that deals with MAC clauses in Australia – even in foreign jurisdictions, MAC litigation and judicial guidance is sparse.Ĭonsidering the risk of MAC litigation, settling MAC disputes (or avoiding them entirely) is strongly preferred. The utility of the MAC clause in such circumstances is clear: although an acquirer intending to engage in a merger or acquisition will knowingly operate in a volatile and sometimes unpredictable environment, it should have the peace of mind of knowing that it will merge with or acquire a company which materially represents the value originally bargained for.ĭealmakers would be excused for thinking that, considering the utility of the MAC clause, there is an array of judicial guidance readily available.
The MAC clause thus reflects a contractually agreed alternative to the doctrine of frustration rather than the acquirer having to establish that the agreement has been frustrated, the parties can opt to define a quantitative measure which they deem to “materially” affect the target business to a degree which entitles the acquirer to terminate the transaction. This tends to be because in a growing number of circumstances (particularly arising from COVID-19) it is not that the transaction has become impossible to perform or that performance is radically different than that intended, rather, it is that due to no fault of the acquirer, an unforeseen event has arisen which has caused the earnings or value of the target company to materially decrease.Įnter the material adverse change or “MAC” clause a contractual mechanism developed over time by the acquirer to address the risk of the target’s business materially deteriorating in the time between when the parties sign the deal and when the deal closes. In almost all transactions there exists an underlying risk that between signing and closing the deal, external events may render the earnings or value of the target company or assets less than what was originally agreed or forecast.Īs dealmakers are likely well aware, reliance on the doctrine of frustration to terminate a sale agreement is often not possible. However, at a fundamental level, they represent a contractual agreement between two parties based on commercial terms negotiated at a given point in time. Sale agreements in Australia are governed by statute (particularly where they involve public companies) and are also guided by common law. The nature of risk in M&A sale agreements This article is part of our Disputes in M&A: 5 key trends for 2022 and beyond series: a collaboration between our market leading Corporate and Dispute Resolution teams.
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