Material Adverse Change Clauses and Acquisition Dynamics

48 Pages Posted: 17 May 2010 Last revised: 2 Feb 2012

Date Written: November 21, 2011


Material-Adverse-Change clauses (MACs) are present in virtually every acquisition agreement. These clauses are the outcome of extensive negotiation and exhibit substantial cross-sectional variation in the number and types of events that are excluded from being ‘material adverse events’ (MAEs). MAEs are the underlying cause of 69% of acquisition terminations and 80% of renegotiations. Moreover, these renegotiations lead to substantial changes in the price offered to target shareholders. We find that acquisitions with fewer MAE exclusions are characterized by wider arbitrage spreads (i.e., the difference between the price offered to target shareholders and the current market price of the target’s shares) during the acquisition period and are associated with higher offer premiums. We conclude that material adverse change clauses have an economically important impact on the dynamics of corporate acquisitions and stock prices during the acquisition period.

Keywords: Acquisitions, Contractual mechanisms, Material-Adverse-Change clause (MACs)

JEL Classification: G34, G32, G14, K12, L14, D86

Suggested Citation

Denis, David J. and Macias, Antonio J., Material Adverse Change Clauses and Acquisition Dynamics (November 21, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: or

David J. Denis

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

Antonio J. Macias (Contact Author)

Baylor University ( email )

Hankamer School of Business
Waco, TX 76798
United States

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