Knowledge

Introduction

This article explores the use of material adverse change (also known as material adverse effect) provisions (“MAC”) in M&A deals within the Asia-Pacific region (“APAC”), to examine how approaches differ to US norms.

The article stems from a review of 46 publicly available sale and purchase agreements (“SPAs”) which were either governed by the laws of an APAC jurisdiction, or featured an APAC based party or target. These findings were also compared to the ABA’s 2023 US Deal Points Study to benchmark APAC practice against US norms.

The review revealed that MAC clauses in APAC deals diverge from US norms, and are generally shorter, less negotiated, and with fewer carve-outs. This divergence is worth understanding, in order to avoid misaligned expectations, negotiation risk, or gaps in risk allocation when considering APAC transactions.

However, as deal size increased, there was greater convergence towards US standards, suggesting that drafting complexity tracks value, not jurisdiction.

Legal foundations

The use of MAC provisions has largely been driven by US legal practice, where MAC definitions are frequently deployed in M&A transactions.

Unlike the US, which has a strong body of court decisions in relation to MAC provisions, such as Akorn, Inc. v. Fresenius Kabi AG, Del. Ch. (2018), Hexion Special Chemicals v Huntsman Corp. Del. Ch. 965 A.2d 715 (2008), and IBP, Inc. v. Tyson Foods, Inc., Del. Ch., 789 A.2d 14 (2001), the courts of other jurisdictions have limited case law on the point.

In the UK, the lack of judicial precedent was discussed in Travelport Ltd v WEX Inc [2020] EWHX 2670 (Comm), where the judge pointed to the “dearth of relevant English authority” in contrast to the “better developed body of case law in the US, notably in Delaware”. Consequently, the court relied on Delaware authority for its decision, stating that to “… ignore the thinking of the leading forum for the consideration of these clauses, a forum which is both sophisticated and a common law jurisdiction, would plainly be imprudent.”

This observation was approved in the recent English case BM Brazil Fundo De Investimento Em Participacoes Multistraegia v Sibanye BM Brazil (Pty) Ltd [2024] EWHC 2566, where Delaware precedent again led the English courts in analyzing the meaning of a material adverse change, and assessing under what circumstances one could arise.

Consequently, the English courts have only recently developed precedents on MAC clauses. The question therefore arises how MAC provisions apply in regions like APAC, which have differing legal approaches, which may create uncertainty as to interpretation and enforcement.

Legal diversity

APAC has a diverse range of legal traditions, which leads to different drafting practices.

Many jurisdictions apply common law principles (Australia, Hong Kong, Malaysia, Singapore and New Zealand), with legal practice aligned to English principles, and Delaware judgements are likely to have persuasive effect if English approaches are followed. However, a question remains as to what standards of materiality are likely to be applied by the local courts.

Other jurisdictions, such as China, Indonesia, Thailand and Vietnam, are civil law jurisdictions. Many of these jurisdictions integrate MAC concepts as part of a wider force majeure principle, which leads to varied approaches towards MAC clauses, both in terms of drafting and interpretation. For example, a recent Indonesian academic paper observed that “the concept of MAC has been widely used in practice, whereas the understanding and familiarity of MAC in Indonesia has yet to progress.”[1]

Some jurisdictions have hybrid systems, which fuse civil law with common law elements, such as judicial precedent. Examples include Japan, the Philippines and Taiwan, where common law influences are largely founded on US legal principles, and there is significant trade with the US, leading to wider familiarity with MAC provisions.

Application in practice

In order to assess whether there was actual divergence in practice, research was carried out on 46 SPAs, which were filed with the Securities and Exchange Commission (SEC), and either governed by the laws of an APAC jurisdiction, or involved an APAC based target or counterparty. While this is a limited sample size, it offers directional insight into drafting tendencies.

Of these SPAs, 31 agreements were governed by the laws of an APAC jurisdiction (“APAC SPAs”), being agreements governed by the laws of Australia, Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore and Taiwan. A further 15 APAC related agreements were governed by English law or the laws of a US state (primarily Delaware or New York).

MAC clauses in APAC deals

Of the 31 APAC SPAs, approximately 61% contained a concept of MAC. Where the SPA contained a MAC provision, this was defined in 63% of instances. Of these agreements, MAC provisions appeared in all the Philippine law agreements, 70% of Hong Kong law agreements, 50% of Malaysian law agreements, 50% of Indonesian law agreements, and 40% of Singapore law agreements.

By contrast, 80% of the US and English law SPAs contained a MAC concept, which was defined in 83% of instances. Put differently, US/English law SPAs in this dataset were nearly twice as likely to contain a MAC definition as Singapore law agreements, and typically defined them in greater detail.

This review suggests that the use of MAC provisions outside of US law governed contracts is variable, both in terms of its inclusion and definition. This may be due to regional drafting differences, expectations, familiarity, or transaction value, but is suggestive of different approaches to risk allocation.

Drafting differences

Where a MAC was defined, the average word count for MAC definitions in the APAC SPAs was around 50- 60 words. This is a stark contrast to the 400-600 word average that appeared in the English and US SPAs, underscoring a major gap in scope and detail.

This difference in definition size may be driven by the comparative lack of complexity in APAC MAC provisions. For instance, in the APAC SPAs, 25% of MAC definitions contained forward looking language, compared to 83% of the US/English SPAs, which were therefore over three times as likely to appear in the US/English dataset. “Prospects” language appeared in 42% of APAC SPA’s versus 25% of US/English occurrences, a rare instance where APAC inclusion was more frequent. Carve-outs were present in just 25% of APAC SPAs compared to 58% of the US/English dataset, and therefore less than half as likely to appear. Similarly, disproportionate effect qualifiers appeared in just 17% of APAC definitions, compared to 42% in the US/English dataset, showing that the qualification was less than half as common in the sample set.

The value differential

In higher value transactions, the divergence between approaches begins to converge. In order to assess whether there was a value differential, the SPAs were filtered, such that only deals with a transaction value of over USD 10M were reviewed. This resulted in a subset of 13 APAC SPAs, and 9 SPAs governed by US or English law.

Of the 13 filtered APAC SPAs, approximately 85% contained MAC provisions. Of the 9 filtered US or English SPAs, approximately 89% contained MAC provisions.

This suggests that, where the transaction value is higher, commercial imperatives become more important that regional drafting practice. It is likely that, where transaction value is higher, purchasers are more focused on risk mitigation and deal counsel may be more aligned to US commercial and legal norms.

In short, deal size, rather than jurisdiction, appears to be the dominant driver of MAC drafting complexity.

Comparison with ABA data

In the ABA’s 2023 US Public Target Deal Points Study, the ABA’s M&A Committee observed that 95% of deals included MAC provisions, which were defined, 2% were undefined, and 3% had no provision. Whereas, in the APAC SPA dataset, just under two thirds had a concept of MAC at all, and it was only defined in 63% of those instances. However, when transactional value filters are included, the occurrence of a MAC concept narrows towards ABA standards, but a significant definitional gap remains, underscoring the risk of assuming equivalent coverage.

A distinction emerges when looking at forward looking language, which occurs in 93% of the ABA’s dataset, but only 25% of the APAC SPAs. Conversely, while “prospects” only occurs in 10% of the ABA dataset, this provision appears in a significant number of APAC SPAs (approximately 42%).

Conclusion

APAC deal practice reflects varied legal traditions, but when deal value increases, MAC drafting partially converges towards US norms. This convergence is partial, inconsistent, and still exposes risk, especially in jurisdictions with civil law foundations or hybrid drafting cultures. For US practitioners, the key risk is assuming that MAC provisions in APAC transactions provide equivalent coverage to US norms without verifying scope, carve-outs, and definitions.

This article was originally published in the ABA M&A Deal Points newsletter in September 2025 and is republished with permission.