21 November 2019

M&A still likes big MACs

Exciting times as material adverse change clauses remain a vital piece of M&A agreements, according to Nixon Peabody's 17th MAC Survey.

Despite economic and geopolitical uncertainty in the US and globally, mergers and acquisitions continue to be a favoured approach to growth, and material adverse change (MAC) clauses continue to be an important feature of M&A agreements, according to the Nixon Peabody 17th MAC Survey.

“Pulse check”

The survey examines MAC clauses in M&A agreements. The 2019 MAC Survey takes a close look at clauses relating to interest rates, exchange rates, and political environment, among others, and serves as a pulse check on the market’s response to shifts in economic and social forces shaping the deal-making environment “In a rare - and perhaps precedent-setting - decision, the Delaware Chancery Court found that a MAC had occurred and allowed health care company Fresenius Kabi AG to back out of a merger with pharma company Akorn, Inc,” explained Richard F Langan Jr, partner in Nixon Peabody’s corporate practice and lead author of the firm’s MAC Survey. “Given this, MAC clauses will continue to be a regular part of the acquisition agreement lexicon.” Nixon Peabody’s 16th MAC Survey was cited in the Delaware Chancery Court’s decision in Akorn, Inc. v. Fresenius Kabi. The firm’s analysis included the review of publicly filed acquisition agreements for transactions with values in excess of $100M dated between June 1, 2018 and May 31, 2019.

"Exciting times"

A team of corporate attorneys reviewed 200 agreements, which included asset purchase, stock purchase, and merger agreements. The surveyed transactions represent an expansive array of industries - including software and technology, energy, and biopharmaceutical - and range in value from $100M to over $74B. 78 deals, valued at $1billion or more, were analysed in the sample and Nixon Peabody’s team compared them to all deals reviewed during the period examined. The survey found that MAC clauses appeared at a higher rate with deals of this magnitude, with notable carve-outs such as changes in the economy, changes to the target company’s trading price, and the ability of the target to meet revenue or earnings projections, among others. “These are exciting times we live in, and I anticipate 2020 to be another robust year of M&A deals, in volume and in deal size. I expect this activity will be driven by the continuation of a low interest rate environment and the availability of significant capital commitments to the private equity community,” said Mr Langan.