Invoking a MAC Clause on a Richmond Hill Construction Deal

The situation

Samir ran the Ontario acquisitions arm of a private equity-backed group that bought established trades and construction businesses and folded them into a growing regional platform. His target this time was a commercial construction company in Richmond Hill, built over two decades by its founder, Dante, from a handful of crews into a business with contracts across the region. Dante's wife, Rosario, a dentist who owns her own practice, had put early savings into the company when it was still a risk and had held a minority share ever since, though she had never worked a day on a job site.

Samir's group agreed to buy the company for roughly $68 million, financed partly through the platform's own capital and partly through acquisition debt that was itself conditional on the deal closing on the agreed terms. The purchase agreement was negotiated over several months and signed with a closing date set about ten weeks out, standard for a deal of that size, to allow time for financing conditions, regulatory filings and other closing steps. Treadstone Law acted for Samir's acquisition vehicle throughout, including in drafting the purchase agreement's material adverse change clause — often called a MAC clause — which gave the buyer a narrow right to walk away from, or renegotiate, the deal if something happened to the business between signing and closing that was serious enough to undermine the reason for the purchase in the first place. At the time it was signed, that clause read like standard boilerplate. It did not stay that way for long.

When the deal wobbled

Six weeks after signing, a large public infrastructure contract that made up a significant share of the company's forecast revenue for the following two years was suspended pending a municipal budget review. The suspension was not unique to Dante's company — several contractors working on similar public projects across the region were affected at the same time, since the review applied broadly rather than singling out any one contractor. But it hit the target's near-term numbers hard, and Samir's financial advisors noticed within days of the announcement, well before the seller's side raised it.

Samir came to us wanting to know whether the suspension gave his group a real basis to invoke the MAC clause, either to walk away from a deal that suddenly looked less certain or, more realistically, to renegotiate the price to reflect the company's reduced near-term revenue before the financing his lenders had committed became locked in on the original terms.

MAC clauses are notoriously difficult for a buyer to actually rely on, and Ontario courts, like courts elsewhere, have generally read them narrowly. There is no fixed test a buyer has to meet. Courts have generally asked whether the change was unknown at signing and whether it threatens the target's earnings potential in a way that is substantial and durable rather than short-lived, with the burden of proof on the buyer. Whether the buyer also has to show the target was hit disproportionately harder than others in its industry isn't a general rule — it turns on the carve-outs written into the particular agreement, and here, the carve-outs our own team had negotiated into this agreement at signing made that a real question. An industry-wide slowdown that hits every comparable contractor is usually exactly the kind of event a well-drafted MAC clause is written to exclude, precisely so a buyer cannot use ordinary market turbulence as an excuse to escape a deal it no longer likes on price. That carve-out, which protected Dante and Rosario at signing, was now the first obstacle standing between Samir and the leverage he wanted.

What we did

1. Went back to the contract language line by line. The carve-outs negotiated at signing excluded changes affecting the construction industry generally, unless the target company was affected in a disproportionate way, and we had to be honest with Samir that his own agreement had been drafted to make exactly this kind of claim difficult. We compared the suspended contract's impact on the target against public information about other contractors facing the same municipal review, to test whether a disproportionality argument could actually be supported on the facts rather than assumed.
2. Assessed durability, not just size. A drop in near-term revenue is not automatically a material adverse change if it is likely temporary, and Samir's initial instinct was to treat the suspension as a permanent hit to the business he was buying. We pushed back on that assumption, researching how municipal budget reviews of this kind typically resolved, and found the suspended contract was under review rather than cancelled, which meaningfully weakened the durability argument the buyer would need to win a walk-away.
3. Advised against a full walk-away claim before it was sent. Samir's first instinct, once his advisors flagged the number, was to instruct us to send a notice terminating the agreement outright and shop the deal terms to a competing target. We told him plainly that a walk-away claim built on an industry-wide, likely-temporary event was legally weak given the carve-outs his own agreement contained, and that overreaching risked a specific performance claim from Dante and Rosario that could cost far more than any savings on price.
4. Sent a carefully scoped MAC notice as leverage, not litigation. Rather than asserting a right to walk away, we drafted a notice that raised the suspension as a material adverse change warranting a price adjustment, framed to open a renegotiation rather than to stake out a position we would have struggled to defend if the sellers refused to move and the dispute went to court.
5. Weighed the real cost of a fight against the cost of a compromise. Samir could have pushed harder and forced the issue toward litigation if the sellers refused any adjustment, but a contested closing risked months of delay, legal costs on both sides, and the real chance his own lenders would treat a stalled closing as a trigger to walk from their financing. We advised him on what a litigated outcome might realistically achieve against a negotiated one, and he chose the negotiated path.
6. Structured a contingent holdback tied to his own lender's requirements. Because Samir's financing was itself conditional on the deal closing on particular terms, we worked with counsel on both sides to document a revised price paired with an escrow holdback tied to whether the suspended contract resumed within an agreed window, in a form his lender would accept without reopening the entire financing package.

The outcome

The deal closed roughly ten weeks later than originally scheduled, at a purchase price of about $61 million, a reduction of roughly $7 million from the original $68 million, with $5 million of that revised price held back in escrow rather than paid to Dante and Rosario at closing, to be released to them if the suspended municipal contract resumed within eighteen months of closing, and otherwise retained by Samir's group to offset the lost revenue.

It was not the outcome Samir had first wanted. He had wanted either a full walk-away right or a much larger, unconditional price cut, and we had told him from the outset that neither was likely to survive a real fight given the carve-outs his own agreement contained. What he got instead was a genuine concession, not a symbolic one: a real reduction at closing, protected further by a holdback that shifted meaningful risk of the contract not resuming back onto the sellers, without the cost, delay, and lender risk that pushing for the maximum outcome would have carried. Dante and Rosario, for their part, accepted the holdback once it was clear the alternative was a drawn-out dispute neither of them wanted so close to retirement.

The suspended contract was reinstated by the municipality about eight months after closing, within the eighteen-month window the parties had agreed. Roughly $3.5 million of the $5 million holdback was released back to Dante and Rosario under the terms negotiated at closing, meaning Samir's group ultimately paid closer to $64.5 million once the contingency resolved in the sellers' favour, still roughly $3.5 million below the original price, and closed on a timeline and structure his lender never had reason to question.

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