Beyond Cyber Fine Print in M&A Negotiation

Like many merger and acquisition agreements involving US-based companies, the terms of Verizon Communications’ acquisition of Yahoo for $4.8 billion in July 2016 included language known as a material adverse change (MAC) clause. Unlike in most M&A deals, however, Yahoo disclosed after signing, that it had become aware of two cyber-attacks dating to 2013 and 2014, that compromised more than 1 billion of its customer accounts.

A MAC clause enables an acquiring company to abandon a deal without penalty if a materially adverse event happens between the agreement’s signing and completion. However, issues often arise over the definition of what constitutes a “material” event and assessing a financial impact, making such terms difficult to enforce, notes Antonio J. Macias, an assistant professor of finance at Baylor University’s Hankamer School of Business.