How a Material Adverse Change Clause Saved a London Acquisition

The situation

Kwame and Chidi built their home care staffing agency the slow way. Kwame had spent years working as a personal support worker before moving into scheduling and operations, and Chidi came from an administrative assistant background before the two of them started matching caregivers with clients across the London area. Eight years later, their agency had grown into a stable regional operation, and they were ready to expand by buying a competing agency run by Arman, whose business covered a set of referral relationships with hospitals and retirement residences that would have doubled their client roster overnight.

Neither of them had bought a company before, and the mechanics of a mid-market acquisition were unfamiliar. Unlike buying a house, where the closing date is usually a matter of weeks and the property does not change in the meantime, buying a business means committing to a moving target. Staff leave, contracts end, clients switch providers, and the value of what is being purchased can shift meaningfully in the gap between agreeing to a deal and actually paying for it. That gap was the biggest risk in the transaction, and it shaped almost every choice we made in drafting the agreement.

The two sides agreed on a purchase price of roughly $5.2 million, based mainly on a multiple applied to Arman's trailing annual earnings before interest, tax, depreciation and amortization, a figure commonly called EBITDA that buyers use as a shorthand for how much cash a business actually generates. They signed a share purchase agreement in the spring, with a closing date set about ten weeks later to allow time for financing, staff transition planning and regulatory notifications. Kwame and Chidi retained our firm to negotiate and draft that agreement, including the conditions that would let them walk away or renegotiate if something changed before closing.

What we drafted, and why it mattered

Every share purchase agreement has a gap between signing, when both sides commit to the deal on paper, and closing, when money and shares actually change hands. In that gap, the buyer is legally bound to a company it does not yet own and cannot fully control. If that company's business deteriorates before closing, the buyer can end up paying a price that was fair on signing day but is no longer fair by closing day.

The tool that protects against this is a material adverse change clause, often shortened to a MAC clause. It is a condition in the purchase agreement stating that the buyer's obligation to close is subject to no material adverse change having occurred in the target's business between signing and closing. If a genuine MAC occurs, the buyer can typically refuse to close, or use the leverage to renegotiate price and terms instead.

The clause is only useful if it is drafted with care. A vague MAC clause invites disputes over what counts as "material" and is difficult to rely on with confidence. Purchase agreements typically list specific carve-outs, situations that will never count as a material adverse change no matter how much they affect the business, alongside the general definition. We drafted the clause for Kwame and Chidi's agreement with those carve-outs in mind: general industry-wide downturns, changes in law, and broad economic conditions would not qualify, since those affect every competitor equally and are not something the seller caused or could prevent. But the loss of a top referral source, a material client contract, or a sustained drop in revenue tied specifically to Arman's business was written in as exactly the kind of change the clause was meant to capture.

We also built in a right for our clients to demand updated financial disclosure in the weeks before closing, so any change would surface before the closing date rather than after. Without that reporting obligation, a MAC clause is often little more than words on a page; a buyer without visibility into the target's ongoing performance has no practical way to know a material change has happened until it is too late to act on it. Pairing the substantive MAC definition with a procedural right to see current numbers was, in the end, the piece that made the clause enforceable rather than theoretical.

What we did

1. Negotiated a specific, defensible MAC definition at signing. Rather than accepting Arman's lawyer's preferred broad and generic wording, we insisted on language tying the clause to changes specific to the target's own business, revenue and client contracts, so it would hold up if it was ever tested.
2. Required interim financial reporting before closing. The agreement obligated Arman's company to provide updated monthly financial statements through the ten-week gap between signing and closing, giving our clients an early warning system rather than a surprise on the way to the closing table.
3. Reviewed the interim statements as they arrived. In week six, the reports showed a sharp drop in monthly revenue. We flagged it immediately and requested an explanation and supporting documentation from Arman's side.
4. Confirmed the cause and its scope. The drop traced to one referral hospital ending its placement arrangement with Arman's agency, a contract that had represented a meaningful share of the company's annual earnings. This was not an industry-wide event; it was specific to Arman's business, which meant it fell squarely inside the MAC definition we had negotiated.
5. Formally invoked the clause. We issued written notice to Arman's lawyer that our clients considered the change material and adverse, and that they were entitled under the agreement to decline to close on the original terms unless the price was adjusted to reflect the company's reduced earning power.
6. Recalculated the valuation using the same methodology both sides had agreed to. Using the original earnings multiple applied to the company's reduced trailing EBITDA, we and Arman's advisors worked out an adjustment of roughly $900,000 off the original $5.2 million price.
7. Closed on the renegotiated terms. Arman's side accepted the adjustment rather than risk the deal collapsing outright, and the transaction closed at a price of roughly $4.3 million a few weeks after the original closing date.

The outcome

Kwame and Chidi completed the acquisition, but for close to $900,000 less than they would have paid under the original agreement, an amount that reflected the real, ongoing reduction in the target company's earnings after losing its largest referral contract. Because the clause had been drafted with specific, defensible language and backed by a contractual right to interim financial disclosure, the renegotiation was not a fight over interpretation. The numbers from Arman's own reporting made the case, and Arman's lawyer did not seriously contest that a material adverse change, as defined in the agreement, had occurred.

The deal closed about three weeks later than originally planned to allow time for the valuation discussion and updated closing documents, a modest delay against the size of the price adjustment achieved. Arman's side avoided a collapsed transaction and the difficulty of finding another buyer for a business that had just lost a major contract, and Kwame and Chidi avoided paying full price for a company that, on the day they were meant to pay for it, was no longer the company they had agreed to buy. They went on to integrate the acquired agency's remaining referral relationships and staff into their existing operation over the following months, at a price that matched what the combined business was actually worth on closing day rather than what it had been worth ten weeks earlier.

Had the original agreement used generic, boilerplate MAC language without the interim reporting obligation, the outcome could easily have gone the other way. Kwame and Chidi might not have learned about the lost contract until after closing, once they owned the company and the loss was entirely theirs to absorb, with no contractual basis left to do anything about it.

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