Material Adverse Change (MAC) Clause Dispute in Nigeria

The client/investor had entered into a Share Purchase Agreement (“SPA”) to acquire a minority stake in a technology company. The SPA included a Material Adverse Change (MAC) clause, which allowed the investor to terminate the transaction if a significant deterioration in the target company’s business occurred before closing. Unfortunately, the target company reported a substantial revenue decline and loss of key customers before closing.

The investor sought to invoke the Material Adverse Change clause to withdraw from the deal, but the seller disputed the claim. The seller argued that the losses were due to  broader changes in the economic conditions in Nigeria and not issues specific to the company.

A. Key Issues & Challenges

Amongst others, the SPA contained a broadly worded Material Adverse Change clause and also lacked precise financial thresholds or objective criteria for triggering termination. The seller relied on this ambiguity and threatened the investor with litigation for breach of contract. Being a new investor in frontier markets, the Investor was keen to avoid damage to its reputation and to future deal making opportunities but was not willing to proceed with the deal.

B. Approach and Outcome

In advising on the matter, we identified the ambiguities in the Material Adverse Change clause and guided the parties toward an objective assessment of the broader economic conditions, which the seller claimed had caused the losses. Recognizing the need for an impartial evaluation, both sides agreed to jointly appoint an independent accounting firm.

Subsequently, the accounting firm conducted a financial analysis of the target company, benchmarking its revenue trends against industry standards. Their findings confirmed that the losses stemmed from industry-wide challenges rather than company-specific operational failures—aligning with the investor’s original position.

Based on the report of the accounting firm, we supported the investor to advance good faith negotiations, which led to a purchase price adjustment. This way, the parties were able to effectively account for lost revenue and were able to close the deal on mutually acceptable terms.

This publication is not intended to provide legal advice and is not prepared with a specific client in mind. Kindly seek professional advice specific to your situation. You may also reach out to your usual Balogun Harold contact or contact us via support@balogunharold.com for support.