Material Adverse Effects after COVID-19
The COVID-19 pandemic caused disruption in the M&A world, with deals being put on hold and buyers attempting to renegotiate terms or back out.
In a spate of lawsuits that followed, considerable attention was on the definition of material adverse effect (MAE) and the language of interim or “ordinary course” operating covenants.
Though most of these cases settled prior to litigation, a late 2020 Delaware Court of Chancery case, AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, provides guidance on how parties can interpret MAE and interim operating covenants going forward. Meredith Kotler, partner and co-head of our securities & shareholder litigation practice, and Ethan Klingsberg, partner and head of our US corporate and M&A practice, discuss this case and explain how the pandemic and recent jurisprudence have affected negotiating MAE clauses and interim operating covenants post-COVID, and take a closer look at potential openings for claims and breaches of closing conditions.