The MAC clause, as its known, enables buyers out of deals if the company should suffer a "material adverse change" to its business, an out some private equity buyers have used in the U.S. of late. It's not as prevalent in Britian, Hockless notes, but that may be changing, especially for PE deals.
Unlike the U.S., MAC clauses have not come into play very often in the U.K. context, owing to the U.K. public takeover regime and the recent negotiating strength of sellers on the private acquisition side. But under current market conditions, there may well be some movement back to including MAC clauses more widely in private acquisition agreements and related financings in the U.K.
Public to private transactions in the U.K. are effected by means of an agreed-to public takeover of the U.K.-listed company by the private equity sponsor consortium. This requires a takeover offer to be made by Bidco under the provisions of the City Code on Takeovers and Mergers, which is administered by the Takeover Panel. Under the code, Bidco cannot proceed with a bid for a U.K.-listed company without having committed financing ("certain funds") available to it before it launches the bid. Therefore, Bidco must enter into a fully negotiated financing documentation that is subject to the minimum conditionality possible. This means there is no MAC out in the financing documentation and the deal's lenders are obliged to lend for the purposes of the bid in all circumstances (other than, generally, in the case of insolvency and a deliberate breach of contract on the part of Bidco).
A MAC is included in the public offer document sent to a target's shareholders, and a key test of its effectiveness came in 2001, when WPP Group plc tried to get out of its deal for Tempus Group plc, arguing that the events of Sept. 11 caused a MAC in the prospects of its business. Read more. - Carolyn Murphy
