easy · Investment Banking ma-lbo

In M&A negotiations, what is the purpose of a 'Material Adverse Effect' (MAE) clause?

1. To allow the buyer to walk away from the deal if the target's business deteriorates significantly between signing and closing.
2. To legally require the target company to pay the acquirer a negotiated break-up fee if the target later accepts a superior offer.
3. To protect the target's shareholders from a decline in the acquirer's stock price during an all-stock deal structure.
4. To guarantee that senior management automatically receives accelerated equity vesting regardless of how the company actually performs.

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