Deal lawyers should take care when negotiating the materiality qualifiers for any merger or acquisition, McGuireWoods Charlottesville partner Clare Lewis and associate PJ Harris advised in the fall 2024 edition of Deal Points, the newsletter of the American Bar Association’s Mergers and Acquisitions Committee.
In their article, “Defining What Matters: The Importance of Materiality, Material Adverse Effects and Materiality Scrapes in a Deal,” Lewis and Harris noted that the 2024 US Public Target Deal Points Study found that the representations made by sellers in deal terms almost always include materiality qualifiers.
The attorneys wrote that understanding the mechanics of how and when to apply materiality language for buyers and sellers is therefore critically important for deal lawyers, and potentially disastrous if mishandled.
“Materiality fundamentally shifts the allocation of liability between a buyer and a seller,” the authors wrote. “It helps write the script for indemnification claim procedures and the degree to which the parties may need to dispute what constitutes a breach and the amounts at issue.”