Analysis

Why Material Adverse Effect Clauses Aren't Escape Hatches

Law360 (April 1, 2020, 8:47 PM EDT) -- Dealmaking clients concerned about the coronavirus crisis may look to terminate already-signed transactions by invoking material adverse effect provisions, but experts say using such clauses to abort an agreement is no easy task.

Material adverse effect clauses, called MAEs for short, are a standard feature of merger agreements that, in narrowly defined situations, can provide an out for clients who have agreed to a deal but subsequently believe the transaction should be nixed. They are essentially the same as material adverse change clauses, or MACs. Although some deals have both, MAEs and MACs are used interchangeably in most cases. 

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