How Will the Akorn Fall in the Lone Star State?

Most acquisition agreements, such as stock purchase, merger or asset purchase agreements, contain several closing conditions that must be satisfied by the respective parties prior to closing the transaction. One such condition is the “material adverse effect” or “material adverse change” (hereafter, “MAC” – courts use the terms interchangeably and use the same approach for change and effect clauses).

Typically, a MAC clause will specify a date – often that of the party’s latest balance sheet – and hold that the party or its subsidiaries cannot have suffered an event or occurrence which may be deemed to be a MAC. A Material adverse effect is commonly defined as a “material adverse effect on the business, assets (including intangible assets), financial condition, prospects, or results of operations of such party and its subsidiaries, taken as a whole,” with slight variations thereof. In some instances, MAC definitions – for purposes of determining whether the condition is satisfied – contain certain carve-outs. Such carve-outs include for general business circumstance, economic conditions and downturns in the party’s industry.