On July 1, 2026, the United States did not confirm the extension of the United States-Mexico-Canada Agreement (USMCA) for another sixteen years. The treaty remains fully in effect, but from that point on, it is subject to annual reviews through 2036. At the same time, U.S. tariffs of 50% on steel and aluminum and 25% on certain automotive products remain in effect. For anyone negotiating the purchase of a Mexican export company, the question is inevitable: if the tariff environment changes significantly between the signing and the closing of the deal, can the buyer withdraw from the transaction?
The answer is usually found in the material adverse change clause, known in practice as MAC (material adverse change) or MAE (material adverse effect). And unless the contract was drafted with that scenario in mind, the answer is almost always no.
What Is the MAC Clause and How Does It Work?
In a stock purchase transaction with deferred signing and closing, the buyer commits to closing the transaction subject to certain conditions. One of the most common conditions is that, between the signing and the closing, no material adverse event has occurred at the target company. This clause serves as a risk allocation mechanism: the buyer assumes the ordinary risks of the business during that period, while the seller retains the risk of a serious and specific deterioration in the company’s condition.
The definition of “material adverse effect” almost always follows the same structure. First, a broad general rule: any event that has or could reasonably be expected to have a material adverse effect on the company’s business, results, or financial condition. Next, a list of exceptions (carve-outs) that exclude systemic risks from that definition: changes in general economic conditions, financial markets, or the industry; changes in legislation or in the interpretation of accounting standards; acts of war or terrorism; pandemics; and natural disasters. Since 2025, it has become increasingly common for the list to expressly mention tariffs, trade measures, and changes in trade policy. Finally, there is a “carve-back”: the excluded risks are reconsidered if they affect the company disproportionately compared to other participants in its industry.
In this regard, the buyer can assess, evaluate, and anticipate the risks inherent in the general context of the transaction, while there are specific circumstances of the target company that are primarily known to the seller. Therefore, the clause seeks to protect the buyer against specific deteriorations in the company, rather than against general market or economic risks.
Delaware Case Law: A Deliberately High Standard
Even if a transaction is governed by Mexican law, Delaware case law is the standard of reference for interpreting these clauses, because that is where they have been litigated most frequently and in greatest depth.
Since IBP v. Tyson Foods (2001), Delaware courts have held that the adverse effect must substantially threaten the company’s ability to generate profits and be “durationally significant”—that is, sustained over time. A slump lasting one or two quarters is not sufficient. In Hexion v. Huntsman (2008), the court clarified that the burden of proof rests with the party seeking to withdraw and that temporal significance must be measured in years, not months.
For nearly two decades, no plaintiff was able to prove in those courts that there had been a material adverse effect. The first case was Akorn v. Fresenius Kabi (2018). Akorn, a pharmaceutical company, suffered a decline of nearly 25% in its annual revenue and more than 80% in its EBITDA after signing the contract, with no signs of recovery, and also seriously breached its regulatory obligations regarding data integrity. The court allowed Fresenius to terminate the contract, and the Delaware Supreme Court upheld the decision. But the decisive factor was not merely the magnitude of the decline. Akorn’s problems were specific to Akorn, not to its industry, and therefore were not covered by any exception.
The pandemic confirmed the rule. In AB Stable VIII v. MAPS Hotels (2020), the buyer of a hotel portfolio argued that COVID-19 constituted a material adverse change. The court ruled that the pandemic fell within the agreed-upon exception for “calamities” and, therefore, could not be invoked as a MAC. The buyer won the case, but on a different ground: the seller had drastically altered the hotels’ operations without the buyer’s consent, in violation of the obligation to conduct the business in the ordinary course. The lesson is useful. The MAC clause rarely succeeds, but management obligations between the signing of the agreement and closing can offer more effective protection.
Tariff changes as a basis for MAC
Applied to the current context, the analysis is fairly predictable. A tariff increase or an adverse outcome in USMCA reviews is, by definition, a change in legislation, trade policy, or general industry conditions. If the contract contains the usual exceptions, such a change is excluded from the definition. It would only count again if it disproportionately affects the target company compared to its competitors, which is difficult to prove when the measure applies equally to all exporters in the same sector. And even if that hurdle were overcome, the buyer would have to prove a substantial and lasting deterioration in the company’s ability to generate profits—not merely the expectation of lower margins.
Under Mexican law, there is no specific legal regulation governing the MAC clause; its scope depends entirely on the terms of the agreement and the rules governing the interpretation of contracts. Nor is it prudent to rely on the theory of unforeseeability: the Civil Code of Mexico City has recognized it since 2010, but the Federal Civil Code does not provide for it, and its application to the commercial sale of shares is, to say the least, debatable. In practice, the contract is the only real protection.
How to Write with the USMCA in Mind
For the buyer, the conclusion is that the MAC clause is not the appropriate tool for hedging tariff risk. If that risk is relevant to the valuation, it should be explicitly addressed. One alternative is to agree on an objective closing condition, linked, for example, to the applicable tariff rate for certain product categories not exceeding a certain level. Another is to structure part of the price as an earn-out contingent on export performance, or to agree to a price adjustment linked to the effective tariff rate at closing. It is also useful to reinforce management obligations in the ordinary course of business between the signing of the agreement and closing.
For the seller, the recommendation is the opposite: ensure that the list of exceptions explicitly mentions tariffs, trade measures, and the results of any review or renegotiation of the USMCA, and carefully negotiate the scope of the counter-exception based on disproportionate effect.
The MAC clause is one of the most frequently negotiated yet least frequently enforced provisions in mergers and acquisitions law. Its purpose is not to provide the buyer with an exit strategy in the face of economic uncertainty, but rather to protect the buyer from an exceptional and specific deterioration in the company it is acquiring. At a time when the trade relationship with North America will be reviewed annually, tariff risk must be explicitly allocated and not through a clause that, by design, rarely takes effect.
