Live Breaking News & Updates on Material Adverse Effect Clauses

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On July 9, 2021, the Delaware Court of Chancery issued its latest decision determining whether a buyer’s attempted invocation of a Material Adverse Effect (MAE) clause was effective to excuse the buyer’s failure to close an acquisition of the target company pursuant to a signed merger agreement. While the court relied upon well-trodden paths in reaching its determination that no MAE had in fact occurred, there are a few takeaways worthy of note i.e., (a) the seemingly “unknown event” element of
IBP, Inc.’s theoretical underpinnings to the purpose of an MAE clause generally, is not a built-in requirement to invoking an otherwise carefully defined MAE clause, (b) durational significance remains a key ingredient in determining whether an material adverse effect has occurred, (c) carve-outs can eliminate otherwise truly material adverse effects from constituting an MAE and (d) the effectiveness of “dispr ....

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