The buyer's draft of the LOI contains a broad Material Adverse Change clause that triggers if we lose a single mid-tier customer before closing. How do we define quantitative thresholds for MAC?

Question

Tyler Smith · Accepted Answer

The Material Adverse Change, or MAC, clause in your LOI is a major vulnerability if it is left vague. Buyers can use any minor negative event, like the loss of a mid-sized account or a temporary supply chain delay, to claim a MAC has occurred and walk away or force a price drop. To protect yourself, you must demand quantitative, bright-line thresholds for what actually constitutes a material change. Define a MAC strictly as a drop in your trailing twelve-month revenue or EBITDA of fifteen percent or more, measured over a specific period. Explicitly exclude general economic downturns, industry-wide challenges, or changes in regulatory laws from the definition. Also, specify that any customer losses resulting from the public announcement of the transaction do not count toward the threshold. Keep your leadership team focused on executing their quarterly Rocks to maintain operational stability during this period. Having clear, measurable definitions in your contract prevents the buyer from using subjective operational hiccups as leverage to re-trade the deal right before closing.