We are in the middle of diligence and the buyer is pushing for a highly restrictive Material Adverse Change clause that includes any minor drop in our monthly recurring revenue. How do we negotiate a balanced MAC clause so they cannot walk away over normal business fluctuations?

Question

Tyler Smith · Accepted Answer

A Material Adverse Change clause is standard, but a buyer should never be allowed to use minor operational fluctuations as a back-door exit ramp or a tool to renegotiate the purchase price. You must define material with extreme precision to protect your deal momentum.

First, negotiate a high quantitative threshold for materiality. A drop in monthly recurring revenue should only trigger a MAC if it exceeds fifteen or twenty percent of your total revenue, and it must persist over a sustained period, such as two consecutive quarters. This prevents normal seasonal fluctuations or temporary client delays from disrupting the transaction.

Second, build standard market carve-outs into the clause. The definition of a MAC should explicitly exclude:
- General economic downturns or industry-wide declines that affect your competitors equally.
- Changes in regulatory or accounting standards.
- Disruption caused by the public announcement of the transaction itself, such as temporary employee anxiety or customer hesitation.

Third, keep your operations running smoothly. Use your weekly Level 10 Meetings to keep your leadership team completely focused on executing your quarterly Rocks. By maintaining strong short-term performance during diligence, you ensure the buyer has zero grounds to trigger any MAC covenants.