Paste a material adverse effect (MAE) or material adverse change (MAC) definition from a merger or credit agreement. Get a carve-out checklist, the disproportionate-effect exceptions, what the definition measures and where the term is used.
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Economy, markets, industry, law, GAAP, war, pandemics, natural disasters, deal announcement, projections, stock price and more.
Which carve-outs fall away when the company is hit harder than its peers.
Business, assets, results, financial condition, prospects, ability to close or perform, lenders' rights and remedies.
Forward-looking “would reasonably be expected to”, “taken as a whole” and aggregation language.
Closing conditions, representations, conditions to borrowing and events of default in your excerpt.
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A material adverse effect (MAE) is a defined term that sets how bad a negative change must be before it lets a buyer walk away from a deal, lets lenders refuse to fund, or makes a representation untrue. A typical material adverse effect definition reads: “Material Adverse Effect means any event, change or effect that has had or would reasonably be expected to have a material adverse effect on the business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole…” — followed by a list of carve-outs.
A material adverse change (a MAC clause) and a material adverse effect clause mean the same thing in practice — some agreements call it a material adverse clause or a material adverse event. What matters is the definition itself and where the term is used — as a closing condition, a representation or, in a credit agreement, a condition to borrowing or an event of default.
An MAE is one of several deal-risk clauses to check in buy-side due diligence, alongside change of control clauses in the target's contracts. Continua's risk and red-flag analysis traces them across the whole data room.
| Carve-out | What it excludes | Usually subject to disproportionate effect? |
|---|---|---|
| General economic, political and market conditions | Recessions, interest and exchange rate moves | Yes |
| Industry-wide changes | Changes affecting the whole industry | Yes |
| Changes in law or GAAP | New regulation or accounting rules | Yes |
| War, terrorism, pandemics, natural disasters | Force-majeure-type events | Yes |
| Announcement or pendency of the deal | Lost customers or staff because of the deal | No |
| Missed projections; stock price changes | The miss itself — the underlying causes can still count | No |
| Actions required by the agreement or requested by the buyer | Steps the buyer asked for | No |
MAE in credit agreements: lender definitions usually have few or no carve-outs and add the borrower's ability to perform, the validity of the loan documents and the lenders' rights and remedies — see how Continua supports commercial credit review. Reviewing the rest of the agreement? Try AI contract review.
Illustrative drafting — and how the checker reads each one.
…any Effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, results of operations or financial condition of the Company…
Flagged as forward-looking and aggregated — effects that haven't happened yet can count.
…except, in the case of clauses (i) through (v), to the extent such Effect has a disproportionate adverse effect on the Company relative to other participants in its industry.
Each listed carve-out is marked “excluded unless disproportionate”.
…a material adverse effect upon the legality, validity, binding effect or enforceability of any Loan Document or the rights and remedies of the Lenders thereunder.
Flagged as covering the lenders' rights and remedies — typical lender drafting.
…a material adverse change in the business, assets, operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole.
Flagged: “prospects” makes the standard broader and harder to measure.
Add the MAE or MAC definition — and the clauses that use it, if you have them.
Thirteen standard carve-outs are checked, with disproportionate-effect exceptions and what the definition measures.
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A defined term that sets how bad a negative change must be before a party can refuse to close, call a default or treat a representation as breached.
In practice, yes. “Material adverse change” and “material adverse effect” are used interchangeably; what matters is the definition and where it is used.
General economic, market and industry conditions, changes in law or accounting, war, pandemics, announcement of the deal, missed projections and stock price changes.
A proviso that lets an excluded event, such as an industry downturn, count again to the extent the company is hit harder than its peers.
Rarely. Akorn v. Fresenius (Del. Ch. 2018) is the best-known Delaware case in which a buyer was allowed to terminate because of an MAE.
Lender definitions usually have few or no carve-outs and also cover the borrower's ability to pay and the lenders' rights and remedies.
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Upload the purchase agreement, disclosure schedules and material contracts. Continua traces each defined term through the whole data room and links every finding to its page.