A material adverse change (MAC) clause lets a buyer walk away from, or renegotiate, a signed Canadian purchase agreement if a defined adverse change hits the target business between signing and closing.
Treadstone Law describes it as a clause that “appears in many commercial contracts, particularly share purchase agreements and merger transactions,” and that “typically allows a buyer to walk away from a deal (or renegotiate) if a defined ‘material adverse change’ has affected the target business between signing and closing.” Invoking one is not easy: “Proving that a MAC has occurred is a high bar. Courts have been reluctant to allow buyers to escape deals simply because conditions changed; the change generally must be durationally significant and substantial in impact.”
What actually counts turns almost entirely on drafting, not on any statutory list. Common carve-outs exclude “macro-economic downturns, industry-wide trends, and pandemic effects” from the definition — the point being that “what constitutes a MAC is almost entirely determined by how the clause is drafted,” and courts examine “which events are included, which are excluded.” A MAC clause is a purely contractual safety valve; it sits alongside, and does the opposite job of, a statutory shareholder-approval requirement like CBCA s.189(3), which forces a seller corporation to put a sale of substantially all its property to a shareholder vote regardless of what the purchase agreement says — a protection that exists whether or not the agreement carries a MAC clause at all.
Suppose a buyer signs an $8,000,000 agreement to purchase a distribution business, with closing set for three months later. Before closing, the target’s single largest customer — 40% of its revenue — terminates its contract. The agreement’s MAC clause excludes “changes generally affecting the target’s industry” but not changes specific to the target itself. Because the customer loss is specific to this business, not industry-wide, the buyer has a plausible basis to invoke the clause. Contrast that with the same industry losing revenue broadly in a downturn: the carve-out for industry-wide change would exclude that scenario from triggering the clause at all.
See also: Indemnity cap, Survival period
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