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Mythical Adverse Effect, Naveen Thomas

Emory Law Journal

The material adverse effect (MAE) definition in mergers and acquisitions agreements is one of the most intensely negotiated, litigated, and studied contract provisions ever. Practitioners and scholars alike encourage attorneys to bargain extensively over these definitions, which have inexorably grown in length and complexity over the past two decades.

Challenging this longstanding conventional wisdom, this Article shows that endemic efforts to customize MAE definitions’ language are in fact inefficient and counterproductive. Each of the purported benefits commonly attributed to extensive MAE negotiation—most notably, risk allocation and renegotiation incentives—is illusory under Delaware law, which governs most major M&A agreements. Careful analysis …