M&A Legal Glossary

Clear definitions of the contract provisions and legal concepts that matter most in M&A due diligence. Each term includes a practical example drawn from real deal scenarios.

Anti-Assignment Clause Change of Control Indemnification Caps IP Assignment Material Adverse Effect (MAE/MAC)Representations and Warranties

Anti-Assignment Clause

A contractual provision that restricts or prohibits one party from transferring its rights or obligations under the agreement to a third party without the other party's prior written consent. These clauses protect parties from being forced into a contractual relationship with an unknown or undesirable counterparty.

Example

In an asset acquisition of a SaaS company, the buyer discovers that the target's largest customer contract contains an anti-assignment clause requiring written consent for any transfer. Because the deal is structured as an asset purchase (not a stock deal), every contract must be formally assigned, and the buyer cannot assume the revenue from that customer without first obtaining consent.

Change of Control

A provision triggered when a specified ownership or governance threshold is crossed, such as through a merger, acquisition, or sale of a majority of voting stock. Change of control clauses give counterparties the right to terminate, renegotiate, or accelerate obligations upon a qualifying transaction.

Example

A private equity firm acquires 60% of a manufacturing company's outstanding shares. The target's primary distribution agreement defines change of control as any transfer of more than 50% of voting interests. The distributor exercises its termination right, forcing the buyer to renegotiate the agreement at less favorable terms before closing.

Indemnification Caps

Contractual limits on the maximum amount a party can recover through indemnification claims. Caps are typically expressed as a percentage of the purchase price and work in conjunction with baskets (deductible or tipping) that set the minimum threshold before indemnification claims can be brought.

Example

In a $200M acquisition, the purchase agreement sets a general indemnification cap at 10% of the purchase price ($20M) with a deductible basket of $1M. The buyer later discovers $5M in undisclosed environmental liabilities. Because the losses exceed the $1M deductible basket, the buyer can recover $4M (the amount above the basket) from the seller, subject to the $20M overall cap.

IP Assignment

The legal transfer of intellectual property ownership from one party to another, including patents, copyrights, trademarks, and trade secrets. In M&A, verifying a complete chain of title for all IP assets is critical, particularly ensuring that employees, contractors, and founders have properly assigned their rights to the company.

Example

During IP diligence for a technology acquisition, counsel discovers that the target's lead developer (a 1099 contractor from the company's early days) never signed an IP assignment agreement. The core product was built primarily by this contractor, creating a gap in the chain of title that must be resolved before closing through a retroactive assignment or license.

Material Adverse Effect (MAE/MAC)

A standard used in acquisition agreements to measure whether a change or event has had (or would reasonably be expected to have) a significantly negative impact on the target company's business, financial condition, or results of operations. MAE clauses are heavily negotiated because they determine when a buyer can walk away from a signed deal.

Example

Between signing and closing of a $500M healthcare acquisition, a new federal regulation eliminates Medicare reimbursement for the target's primary service line, reducing projected revenue by 40%. The buyer invokes the MAE clause to terminate the deal. The seller argues the regulatory change falls within the "changes in law" carve-out. Litigation follows over whether the carve-out applies when the impact is disproportionate to industry peers.

Representations and Warranties

Statements of fact made by the seller (and sometimes the buyer) in an acquisition agreement regarding the condition of the business, its assets, liabilities, and legal standing. Representations are assertions about past or present facts, while warranties are promises that those facts are true. Breaches of reps and warranties form the basis for post-closing indemnification claims.

Example

A seller represents in the purchase agreement that there is no pending or threatened litigation against the company. Six months after closing, the buyer discovers a pre-closing product liability lawsuit that the seller's general counsel knew about but failed to disclose. The buyer brings an indemnification claim for breach of the litigation representation, seeking recovery of defense costs and any settlement from the seller.