Anonymised, illustrative composite. Revenue dropped 22% in the quarter between signing and the scheduled closing. The buyer thought that settled the question. Its own purchase agreement said otherwise.
At a glance
A fund signed a share purchase agreement to acquire a building-products distributor, with a six-week gap between signing and a scheduled closing to allow for financing and regulatory steps. The agreement's closing conditions included the standard material adverse change condition: the buyer was not obligated to close if the target had suffered a MAC between signing and closing, subject to a list of negotiated carve-outs.
Those carve-outs, negotiated in the usual tug-of-war, excluded changes resulting from general economic or industry conditions, changes in law, and any effect from the announcement of the transaction itself — standard drafting the buy-side team had accepted with only modest pushback, on the assumption a real MAC would be obvious enough not to need a fight over the carve-out language.
Six weeks after signing, one of the target's largest customers paused new orders for the season, and reported quarterly revenue came in 22% below the same quarter the year before. The buyer's deal team, reading the drop against a purchase price built on a trailing-twelve-month multiple, concluded this was exactly the scenario the MAC clause existed to protect against, and instructed counsel to invoke it — either to walk from the deal or force a price reduction before closing.
The seller pushed back immediately, and treadstonelaw's guidance on how Canadian courts actually treat these clauses explains why the buyer's position was weaker than it looked: “The change must be substantial, durationally significant (not a short-term blip), and unknown to the buyer at signing”. It adds two sentences the buy-side team had never weighed against its own facts: “Successfully invoking a MAC clause to walk away from a deal is very difficult, particularly in Canadian courts,” and “Courts have set a high bar in comparable jurisdictions.”
The seller's counsel produced the customer's own ordering history for the prior three years: the same seasonal pause, in roughly the same range, had occurred every year in the same quarter, reversing itself within eight to ten weeks each time. That evidence went directly to the “durationally significant” requirement — a recurring, reversing seasonal pattern is not the kind of durable deterioration a MAC clause is drafted to capture, however sharp the single-quarter number looked in isolation. The carve-out argument was the weaker of the two, and it is worth being honest about that rather than stacking it on. The exclusions of this kind normally reach, in treadstonelaw’s own list, “general economic downturns, industry-wide conditions, changes in law, and pandemics” — conditions that move the sector. One named customer pausing its own orders is a target-specific event, and reading it into an industry-conditions carve-out is a stretch a seller would not want to have to make. What defeated this claim was the durational point, not the carve-out.
There is no statute behind any of this, which is the first thing counsel said. A MAC condition is a contractual term, and its meaning is settled the ordinary way: the Supreme Court’s direction in Sattva is that contract interpretation takes “a practical, common-sense approach not dominated by technical rules of construction,” with the overriding concern being “the intent of the parties and the scope of their understanding,” read against the surrounding circumstances the parties knew when they contracted. Three years of the customer’s own ordering history was precisely that kind of surrounding circumstance, and it pointed one way. Faced with that evidence and the buy-side team's own carve-out language, outside counsel advised that a MAC claim would not survive a challenge: the drop was real, but it was not the kind of change the clause, as drafted and as Canadian courts read comparable clauses, was built to excuse performance over.
It is worth being precise about what a MAC clause is drafted to capture, because a revenue figure is only one of several fact patterns that can qualify. Treadstonelaw's separate guidance on the point lists what else counts: “the loss of a key customer, contract, or supplier relationship; the departure of critical management or staff; a serious regulatory or legal problem; damage to key assets; or a fundamental change in the business's ability to operate” — each judged the same way, on whether it is “significant and, importantly, whether it's durationally meaningful.” A seasonal revenue dip with a three-year precedent of reversing itself was never going to meet that bar; a sudden, unexplained departure of the target's general manager in the same six-week window might have told a very different story.
The fund closed on the original terms. It did not close blind, however: the near-miss changed how the fund now drafts MAC definitions on subsequent deals, narrowing the general economic and industry carve-outs to exclude changes that disproportionately affect the target relative to its sector, and adding an express interim-covenant right to updated financial reporting through to closing, so that any real deterioration is visible and actionable well before a MAC dispute becomes the only tool available.
The lesson the deal team took away was not that MAC clauses are useless — it was that a MAC clause negotiated as boilerplate protects the seller by default, because the burden of proof and the courts' own reluctance to excuse performance both run against the party trying to invoke it.
A 30-minute call is enough to tell you whether a structuring or diligence gap like this one is sitting in your pipeline.
