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MAC Survey 2009

MAC Survey 2009

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Published by Dan Primack

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Published by: Dan Primack on Dec 17, 2009
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2009 Nixon Peabody MAC Survey
A Nixon Peabody study of currentnegotiation trends of Material AdverseChange clauses in M&A transactions
Methodology 2Results 2Charts
MAC Elements 3MAC Elements: Miscellaneous 5MAC Exceptions: Change in Markets 6MAC Exceptions: Legal Developments 7MAC Exceptions: Hostilities,Calamities, and Acts of God 8MAC Exceptions: Miscellaneous 9MAC Exceptions: Changes inOrdinary Course of Business 10MAC Exceptions: Employee Matters 10
Conclusions 9
 We initiated this survey in 2000
in order to helpidentify the basic elements of MAC provisions as usedby practitioners and trends in the appearance of theseelements over time. Since the first survey, this annualexercise has undergone significant expansion in itsscope. In the over-heated seller’s market that developedafter 2000, our surveys initially showed increasingly seller-favorable formulations with less expansive inclu-sion language and an increasing list of exclusions. Overthe last two years we have seen some reversal of thosetrends, albeit in a more splintered market that is difficultto characterize as either buyer- or seller-friendly.By way of explanation, a material adverse change(“MAC”) or material adverse effect (“MAE”) provisionin an agreement generally serves two separate functionsin an acquisition agreement. In the first, the MACor MAE definition serves as a carve-out from variousrepresentations and covenants, defining a thresholdfor determining the scope of disclosure or compliance. An example of this use would be: “The Company’scontracts are in full force and effect, except as wouldhave a Material Adverse Effect.” The MAC provisionis also used to delineate the circumstances that, upontheir occurrence, permit a buyer to withdraw from thetransaction without penalty. This latter use is knownin common parlance as the “MAC out” and appears inthe buyer’s conditions precedent to close, i.e., “thereshall not have occurred a Material Adverse Change inthe Company.” The effects of the MAC out are thentempered by a listing of specific events, the “MACexceptions,” that preclude a buyer from backing out of a deal or renegotiating even if a MAC has occurred.The elements of MAC clauses are generally heavily negotiated, with sellers attempting to narrow the MACdefinitional elements and expand the exceptions, andbuyers doing the reverse.
 As in prior years, we surveyed agreements with transac-tion values of $100 million or greater based on agree-ments dated between June 1 of the prior year (2008)and May 31 of the current year (2009). This year, we examined 523 asset purchase, stock purchase, andmerger agreements. The surveyed transactions representmany significant industries and range in value from$100 million to $66.8 billion.In selecting our 523 agreement sample, we generateda list of deals executed between June 1, 2008, andMay 31, 2009, from publicly available informationsubmitted to the Securities and Exchange Commission,and selected agreements from that list. Although thisanalysis is not technically scientific, we believe that theresults are statistically representative of the marketplaceclimate of M&A transactions during the period. We also separately analyzed the top 100 deals during theperiod examined. The top 100 agreements were derivedfrom the list of top 100 deals for 2008 and the top 25deals for Q1 2009 announced in
 Mergers & Acquisitions:The Dealmaker’s Journal,
excluding those deals thatoccurred during the first six months of 2008 and wouldhave been reported on the previous year’s survey.
Nixon Peabody Annual MAC Survey 1 2
Summary of results
In the agreements surveyed, the use of various MACdefinitional elements remained generally steady whencompared to last year’s survey, while there was a slightdecrease in the number of MAC exceptions included inthe agreements surveyed. Survey results confirm that,during the survey period, the majority of MAC clausesexamined remained more “buyer-friendly” than in theearly years of the survey.In comparison to the sampling as a whole, we haveseen that the top 100 deals generally followed the samepercentage trends of the MAC definitional elementsand had a slightly higher percentage trend in the MACexceptions. These findings show little deviation fromlast year’s survey results. We are hesitant to draw firm conclusions, or to seek toidentify clear cause-and-effect paths, from these results.Many economists place the peak of the credit crisisbetween June and September 2008. This year’s survey, which covers deals from June 1, 2008, through May 31, 2009, incorporates that peak period. Along withthe credit crisis, however, has come a recessionary slow-down in economic activity. Those two factors have hada strong, but not necessarily consistent, effect on M&A deal flow and structure. The credit crisis has made itdifficult for buyers to close deals, favoring the limitednumber of buyers with continued access to creditand those (including private equity funds flush withundrawn commitments) who have been willing andable to invest large amounts of their own funds. Thisreduction in the number of eligible buyers has tendedto create a more buy-friendly environment for those stillin the market.
Nixon Peabody’s Annual MAC Survey provides an analysis of MACclauses in publicly disclosed M&A transactions. The results generally reflect a continuation of trends from the prior year.

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