The Level of Efficiency of MAC Clauses in M&A Agreements

Abstract

The purpose of the following thesis is to analyze both the legal and economic ramifications regarding the use of MAC clauses. This type of clauses is often used on the agreement of mergers and acquisitions. MAC clauses seek to allocate financial risk relation to the interim period between the signing day and the time of closing. This time is a particularly vulnerable, especially when the time of signing and closing isn’t simultaneously. Therefore, it seems relevant to analyze whether this clause enables the most efficient conclusion of mergers and acquisitions agreements. 

The legal analysis sets forth the applicable law, when a subsequent has occurred resulting in a material adverse change. The legal analysis in the thesis provides an assessment of the applicable law and how this want yield any right for the buyer to refuse closing when a material adverse change has occurred. Therefore, the background law cannot sufficiently ensure the optimal conclusion of the contract between buyer and seller. Hence, the parties might seek to anticipate the change by applying a MAC-clause in the agreement to allocate the risk efficiently and that allows the buyer to step back from the agreement, thus enabling the possibility of a greater value between the parties.

Subsequent, in the economic part of the thesis will analyze the efficient allocation of both the endogenous and exogenous risks to respectively the seller and the buyer. This allocation of the risks will furthermore have an influence on the parties’ incentives to ensure the upholding of the agreement. Initially, it seems most efficient to allocate both the endogenous and exogenous, thus creating both to greatest incentive to invest in the target company, but this allocation also seems to induce the problem of moral hazard. To further improve the agreement and from a transaction cost economics point of view, it can be deemed efficient to leave the agreement incomplete and thereby save some costs relating to the contracting of the agreement. 

Lastly, and through an interdisciplinary combination of the legal analysis and the economics analysis, the last part of the thesis will present a way to optimize the current MAC clauses by including both proactive and reactive measurements. This type of contracting, also known as strategic contracting, seems to give incentives to the parties to focus and creating more values within the contract through relationship-specific investments and to seek a solution between the parties and thereby internalizing some of the cost. The purpose of the following thesis is to analyze both the legal and economic ramifications regarding the use of MAC clauses. This type of clauses is often used on the agreement of mergers and acquisitions. MAC clauses seek to allocate financial risk relation to the interim period between the signing day and the time of closing. This time is a particularly vulnerable, especially when the time of signing and closing isn’t simultaneously. Therefore, it seems relevant to analyze whether this clause enables the most efficient conclusion of mergers and acquisitions agreements. 

The legal analysis sets forth the applicable law, when a subsequent has occurred resulting in a material adverse change. The legal analysis in the thesis provides an assessment of the applicable law and how this want yield any right for the buyer to refuse closing when a material adverse change has occurred. Therefore, the background law cannot sufficiently ensure the optimal conclusion of the contract between buyer and seller. Hence, the parties might seek to anticipate the change by applying a MAC-clause in the agreement to allocate the risk efficiently and that allows the buyer to step back from the agreement, thus enabling the possibility of a greater value between the parties.

Subsequent, in the economic part of the thesis will analyze the efficient allocation of both the endogenous and exogenous risks to respectively the seller and the buyer. This allocation of the risks will furthermore have an influence on the parties’ incentives to ensure the upholding of the agreement. Initially, it seems most efficient to allocate both the endogenous and exogenous, thus creating both to greatest incentive to invest in the target company, but this allocation also seems to induce the problem of moral hazard. To further improve the agreement and from a transaction cost economics point of view, it can be deemed efficient to leave the agreement incomplete and thereby save some costs relating to the contracting of the agreement. 

Lastly, and through an interdisciplinary combination of the legal analysis and the economics analysis, the last part of the thesis will present a way to optimize the current MAC clauses by including both proactive and reactive measurements. This type of contracting, also known as strategic contracting, seems to give incentives to the parties to focus and creating more values within the contract through relationship-specific investments and to seek a solution between the parties and thereby internalizing some of the cost.