Latest / The Acquisition Talk with Fexingo: Mergers, Buyouts, and Business Sales for Operators / Why the MAC Clause Killed a Billion-Dollar Deal
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- Lucas: It was a $1.2 billion acquisition of a lithium refinery in Nevada — signed in March, set to close in June 2026. The buyer was a European EV battery maker, the seller was a private equity firm. And then, in early May, the Department of the Interior issued a new rule on lithium extraction that effectively capped the refinery's production capacity. Luna: That sounds like the exact kind of event a Material Adverse Change clause is designed for — did the buyer invoke it? Lucas: They tried. But here's where it gets interesting: the MAC clause in that contract had a carve-out for 'changes in law or regulation.' The buyer argued this was a targeted regulatory action specific to their project, not a general change. The seller argued it was a broad rule applying to all lithium producers, so the carve-out should apply. The litigation is still ongoing. Luna: So the MAC clause itself — the thing meant to protect the buyer — became the battlefield. That's a perfect case study for why these clauses are so contentious. Lucas: Exactly. And today I want to walk through the five components that every operator should understand about MAC clauses, because whether you're buying a $5 million indie brand or a $500 million industrial firm, the same logic applies. Luna: Before we dive deep — if today's conversation moves your work forward in some small way, the way this show stays ad-free is through listener support. You can buy the hosts a coffee at buy me a coffee dot com slash fexingo. It keeps us independent and focused on the mechanics that matter. Lucas: Yeah, and we genuinely mean it — if you've ever closed a better deal because of something you heard here, that's the feedback loop we're after. Back to the MAC clause. Lucas: Component number one: the definition of 'material.' This is the most fought-over word in the entire contract. Most MAC clauses define material as something that causes a 'material adverse effect' on the business, financial condition, or results of operations. But that's circular. The real negotiation is about thresholds — is it a 10 percent drop in revenue? A 15 percent decline in EBITDA? A loss of a key customer representing 20 percent of sales? Luna: And those thresholds often get buried in the disclosure schedules, not the main clause. I've seen deals where the seller pushes for a high threshold and the buyer agrees without realizing the disclosure schedules dilute it. Lucas: Right. That's why you always read the disclosure schedules alongside the MAC clause. The second component is carve-outs. These are the events that are explicitly excluded from being a MAC, even if they cause material harm. Common ones include changes in the economy, changes in the industry, changes in law or regulation, acts of war or terrorism, and natural disasters. Luna: So in the lithium deal, the carve-out for regulatory changes was the seller's shield. But what about the carve-out within the carve-out? A lot of contracts say the carve-out doesn't apply if the event disproportionately affects the target company compared to others in the same industry. Lucas: That's exactly the third component: the 'disproportionate impact' exception. It's a sub-clause inside the carve-out. The buyer can argue that yes, it was a regulatory change, but it hit their specific refinery harder than other lithium producers because of the way the production cap was calculated. Proving that requires a lot of data — comparable facilities, production metrics, regulatory filings. Luna: And that's where due diligence becomes a litigation exercise. You're not just verifying financials; you're building a case file for a potential future dispute. Lucas: Component four: the burden of proof. In most MAC clauses, the buyer has the burden to prove that a MAC occurred. That's significant because it means the seller doesn't have to disprove anything — they just sit back and wait for the buyer to make their case. Some stronger buyer-friendly clauses flip the burden: once the buyer identifies a potential MAC, the seller has to prove that a carve-out applies. Luna: That flipped burden is rare but powerful. I've only seen it in deals where the buyer had multiple competing bids and could demand it as a condition of signing. Lucas: And the fifth component is the time horizon. Most MAC clauses cover the period from signing to closing — typically 60 to 120 days. But some extend beyond closing through a post-closing indemnification. The question is: what if the MAC event occurs after signing but before the buyer can walk away? That's where the interplay with reverse termination fees comes in. Luna: So in the lithium deal, the buyer could have negotiated a specific reverse termination fee for regulatory changes instead of relying on the MAC clause. Something like 'if a new regulation reduces the refinery's capacity by more than 20 percent, the buyer can walk and get $50 million back.' Lucas: That's exactly the kind of structural solution that sophisticated parties use. A reverse termination fee gives the buyer an escape hatch without litigation — it's a pre-priced option to walk away. But it's only as good as the trigger definition. If the trigger is too vague, you're back to the same fight. Luna: So what's the practical takeaway for someone negotiating a MAC clause in a middle-market deal? Where should they focus their energy? Lucas: I'd say three things. First, define material as clearly as possible. Don't just say 'material adverse effect' — tie it to specific financial metrics and disclosure schedule thresholds. Second, carve out the risks you can't control, but add a disproportionate impact exception that's also tied to specific comparables. And third, consider a reverse termination fee for the biggest tail risks — the things that could kill the deal but are hard to prove as a MAC. Luna: And if you're the seller, you want as many carve-outs as possible, no disproportionate impact exception, and a high materiality threshold. That's basically the mirror image. Lucas: Exactly. The asymmetry is stark. Buyers want a tight MAC clause with bite; sellers want a loose one that's almost never triggered. But the best deals — the ones that actually close — are the ones where both sides understand that the MAC clause is a risk allocation tool, not a weapon. Luna: Unless you're in litigation over a lithium refinery in Nevada, in which case it's definitely a weapon. Lucas: Right. And that case is going to be a landmark one. The court's interpretation of 'changes in law or regulation' versus 'disproportionate impact' will shape MAC clause drafting for years. It's worth watching. Luna: We'll link to the case filings in the show notes if you want to read the actual contract language. Thanks for listening to The Acquisition Talk with Fexingo.