Material Adverse Effect Clauses and the COVID-19 Pandemic

35 Pages Posted: 28 Sep 2020

See all articles by Robert T. Miller

Robert T. Miller

University of Iowa College of Law; Classical Liberal Institute, New York University Law School

Date Written: May 18, 2020


This paper considers whether the COVID-19 pandemic, the governmental responses thereto, and actions taken by companies in connection with both of these constitute a “Material Adverse Effect” (MAE) under a typical MAE clause in a public company merger agreement. Although in any particular case everything will depend on the exact effects suffered by the company and the precise wording of the MAE clause, this paper concludes that, under a typical MAE clause, given the current tremendous contraction in economic activity, most companies will have suffered a material adverse effect as such term in used in the base definition of most MAE clauses. The question thus becomes whether the risks of a pandemic or of governmental responses thereto have been shifted to the acquirer under exceptions to the base definition. This paper considers some of the difficult causal questions that would arise in answering this question, including the relation of actions taken by the company to remain solvent while suffering the effects of COVID-19 and governmental lockdown orders, and concludes that, in some instances, a company will have suffered an MAE even if the MAE clause contains exceptions for pandemics, changes in law, or both.

Keywords: material adverse effect, material adverse change, MAE, MAC, COVID-19, pandemic

JEL Classification: K22, M21

Suggested Citation

Miller, Robert T., Material Adverse Effect Clauses and the COVID-19 Pandemic (May 18, 2020). U Iowa Legal Studies Research Paper No. 2020-21, Available at SSRN: or

Robert T. Miller (Contact Author)

University of Iowa College of Law ( email )

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Iowa City, IA 52242
United States
(319) 335-9034 (Phone)

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Classical Liberal Institute, New York University Law School ( email )

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United States
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