Return of the MAC

Ahead of the Deal - Australian M&A Briefing

Volatile markets, unsurprisingly, can make deal execution challenging. At disruptive moments, such as the GFC (2007 – 2009) and the initial phase of COVID-19 (2020 – 2021), sudden changes to share prices and the cost and availability of finance can see 'non-binding indicative offers' melt away, prospective IPOs pulled and auction processes delayed.  

Signed deals are no exception. As markets turn, the bidder's enthusiasm can rapidly curdle into buyer's remorse and 'material adverse change' (MAC) clauses become the exit path, or at least a credible basis for seeking a renegotiation on price, as was the case in 2020 Metlifecare Limited scheme in New Zealand. 

The attempt by US-based Cosette Pharmaceuticals, Inc to terminate its agreement to acquire ASX-listed Mayne Pharma Group limited on the basis of a MAC (and breach of warranty) has attracted significant attention in Australia. 

It follows hot on the heels of Peabody's May 2025 announcement that a MAC had occurred under its November 2024 agreement to acquire metallurgical coal assets from AngloAmerican, on the basis of a fire at the Moranbah North Mine – which AngloAmerican has denied amounts to a MAC. 

These notable disputes illustrate how MAC clauses can become a focus of attention and dispute when financial, economic, business or operational conditions change – and highlight the importance of carefully considering, tailoring and negotiating a MAC clause.

What's in a MAC?

What is a 'MAC' anyway? In short, a 'material adverse change' clause (sometimes also called a 'material adverse event' or 'MAE' clause) is a condition precedent (expressed in the negative – ie that there shall be no MAC), or sometimes alternatively a termination right, that allows a bidder to walk away if there are significant and unforeseen adverse changes in the target's business, financial condition or prospects.

MAC clauses have become a common feature of Australian public M&A transactions – our 2025 M&A Deal Report identified that in 2024, 86% of all deals (and almost all schemes of arrangement) involving ASX-listed targets valued in excess of $50 million included a MAC clause. 

Much debated, rarely relied on 

Deal termination on the basis of MAC clauses are quite rare, throwing into the spotlight the few instances when they do arise. There have only been a handful of notable 'MAC claims' in recent years – most of which arose in the context of the disruption caused by COVID-19. Here are just a few examples:

• EG FuelCo's proposed acquisition of Oliver's Real Food (in which the bidder asserted a breach of a net indebtedness condition, and the SID was mutually terminated);
• Scottish Pacific's scheme implementation deed with CML Group (in which alleged MAC triggered by COVID-19 impacts led to a termination of the SID by mutual agreement); and
• Carlyle Group's proposed acquisition of Pioneer Credit, which involved Carlyle alleging a Default of a significant loan facility extended to Pioneer by reason of (among other things) a material adverse effect arising out of COVID-19 impacts, to which Pioneer Credit responded by terminating the SID with Carlyle on the basis the scheme would not proceed by the agreed 'sunset date'.

Actual Court (or Takeovers Panel) proceedings on MAC clauses are even rarer (in Australia). Higher profile disputes include Woolworths' withdrawal of its offer to acquire Grace Bros in the 1980s and the Takeovers Panel's 2010 decision regarding Paladin's purported reliance on a MAC to avoid proceeding with its bid for NGM Resources(in the context of a terrorist attack that had occurred 150km away from NGM's tenements in Niger).

US and English cases have some judicial guidance to offer. The English Commercial Court's 2024 decision in the BM Brazil, is illustrative of the issues encountered in MAC clauses. These tend to address 'US-style' generic MAC clauses that refer to a 'material adverse effect' (or similar) on the target's asset or generally, rather than MAC clauses (like those now more common in Australia) that include more specific and quantitative thresholds – so their relevance can be limited.

The current MAC dispute between Mayne Pharma and Cosette, which has prompted Mayne Pharma to commence Court proceedings to determine whether or not Cosette's purposed termination for a MAC is valid, therefore presents a rare opportunity for listed companies, potential bidders and their advisers to obtain an insight into when a bidder may or may not be able to rely on a MAC clause to walk away from a deal.

Negotiating a MAC clause – some key considerations

While we await the outcome of the dispute between Cosette and Mayne Pharma (and any developments between Peabody and AngloAmerican), and particular lessons that may be drawn from its facts and the wording of the MAC condition in question, there are principles that can guide any MAC clause negotiation:

1. Quantitative over qualitative, or both?

It is well established in UK and US cases is that 'material adverse change' sets a conceptually high bar – requiring an impact of considerable significant on the target's business and long term prospects, assessed in the context of the transaction as a whole, such that a short-term fluctuation in earnings will not suffice. 

It is common in Australia (perhaps due to the difficulty in confidently drawing the above conclusions in respect of any significant event) for parties to agree quantitative MACs which turn on whether an event has had or will have an adverse effect on a target's assets or earnings of greater than a specified quantitative threshold. The appropriate measure will depend on the specific target and its industry. While a net assets test may be appropriate for a mining company, or funds under management for an investments business, revenue or EBITDA may be the right way to gauge an adverse impact on a services-focused business.

Appropriate and carefully calibrated qualitative MACs still have a place, however. ASIC's preference is to have objective and "quantifiable" MAC clauses, which do not turn on the opinion of the bidder (lest they attract section 629 of the Corporations Act). However, as noted in our M&A Deal Report 2025, there is a clear rise in the proportion of MACs that mix quantitative and qualitative triggers – with such MACs being present in 41% of surveyed deals in 2024, near double the corresponding figure of 22% in 2022. 

Courts considering scheme transactions have also generally accepted qualitative MACs, usually with clear drafting and appropriate disclosure made in the scheme booklet.

2. Measure for measure:

Quantitative MACs can also themselves be highly complex. The Mayne Pharma – Cosette MAC clause is illustrative. The agreed metric concerns 'Maintainable EBITDA', the definition of which runs to over a page and excludes (among other things):

• both revenue and profit, and costs and losses, from 'non-operating activities';
• settlement amounts in relation to legal proceedings that are otherwise permitted under the SID – but not any incremental operating costs that Mayne Pharma may incur from changes to its business arising out of any such settlements; and
• certain restructuring costs relating to employee redundancies.

Bidders and targets should be aware that ASIC, in the context of reviewing draft scheme booklets (or bidder's and target's statements) takes an interest in unusual and complex MAC clauses. For schemes, detailed submissions may also need to be made at the First Court Hearing in the context of deal conditionality as well as disclosure to target shareholders. While MACs should be tailored to each party's satisfaction in every deal, the nature of the regulatory interaction that follows should not be underestimated. 

3. Typical exclusions:

A typical MAC clause is also subject to a significant number of specific exceptions.

Common exceptions include: 

• changes arising as a result of the announcement or implementation of the transaction – which could include, for example, loss of customer or supplier contracts or relationships;
• matters 'fairly disclosed' in due diligence – itself often a contested concept; and
• changes in law or regulation, accounting standards, political, economic or financial market conditions (including exchange rates and commodity prices), or arising from natural disasters, war or (particularly in recent years) pandemics – though only where these do not have a disproportionate effect on the target relative to its industry peers or competitors.

These reflect that the market practice on risk allocation for MACs is that – broadly speaking – matters that are either known (or ought to be known) to the bidder, or that amount to general risks that are not specific to the target itself, are matters of risk to be assumed by the acquirer and not reasons to terminate the deal. Of course, there is no "one size fits all" here – for instance, an acquirer of an insurance business may be unwilling to accept a general exception for natural disasters, given the substantial impact they can have on an target's financial position as an insurer.

4. Just new events, or also new discoveries?

One important detail is whether a MAC can arise only due to events that 'occur' during the period between signing the transaction agreement and implementing the deal – or whether a MAC clause will also cover matters that may have occurred beforehand, but are only later disclosed or discovered.

Where: 

• the target is a listed company – and is warranting that it has complied with the listing rules, including in relation to continuous disclosure; and/or
• due diligence has been undertaken – and the target is warranting the completeness and accuracy of the DD information,

a bidder may be comfortable that there are unlikely to be any such 'undiscovered' previous material events – or if there are, that a breach of one or both of these warranties will give it an alternative termination right.

The proof is in the wording…

Even after heavy negotiations, determining whether a MAC has occurred is challenging. In a scenario such as that in the Mayne Pharma – Cosette dispute, determining whether a MAC as occurred involves assessment of:

• the cumulative effect of a series of events;
• the likely EBITDA impact of those events over a future period – an inherently challenging exercise given its forward-looking nature (and the ability to mitigate against future adverse outcomes);
• the extent to which 'Maintainable EBITDA' as defined in the SID is impacted; and
• the extent to which some or all of those events may be wholly or partially excluded from the MAC– for example:
  • 'fair disclosure' in due diligence;
  • matters covered by insurance (such that actual loss is mitigated); or
  • market-wide events (which are often excluded) resulting in specific consequences that impact the target (which may not be excluded).

A purported termination of a SID by a bidder on the basis of a MAC clause places the target in a difficult position. It may be that the target has grounds to debate the MAC has occured, or the target may seek to negotiate an outcome (revised conditionality and/or price). Commencing proceedings to assert that the bidder is required to proceed with the deal will be expensive and leaves shareholders in a state of uncertainty if they have already approved the scheme. The Cosette - Mayne Pharma issues highlight, the sensitivities and risks arising in this context and the outcome of the dispute will help inform and develop new ideas to manage such risks.

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