The Informatica merger and the MAC clause
The MAC (material adverse change) clause is one of the first things arbitrageurs look at. In the Informatica merger, the MAC clause lays out the circumstances under which the private equity consortium can back out of the deal with Informatica (INFA).
Let’s take a look at the specific conditions that could stop this deal. In private equity transactions, arbitrageurs take a very close look at the MAC.
The MAC clause, paraphrased
As a general rule, MAC clauses follow a similar format. Nearly anything that has a material adverse effect on the company will be considered a MAC, but there are exceptions to that rule.
Please note that the following MAC clause has been paraphrased here to limit the legalese. You should still read and understand the actual language in the merger agreement.
“Company Material Adverse Effect” means any fact, event, violation, inaccuracy, circumstance, change, or effect that is or is reasonably likely to be materially adverse to the business, operations, financial condition, or results of operations of the company and its subsidiaries taken as a whole—provided, however, that in no event shall any effect be taken into account when determining whether a company MAE (material adverse effect) has occurred.
Please note that this is the standard MAC language. There will be a description of the carve-outs in the next two parts of this series. There’s a disproportionate effect clause. It means that no carve-out can have a disproportionate effect on Informatica relative to companies in the industries in which Informatica operates.
Merger arbitrage resources
Other important merger spreads include the deal between Baker Hughes (BHI) and Halliburton (HAL) as well as the merger between Pharmacyclics (PCYC) and AbbVie (ABBV). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
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