Navigating Material Adverse Changes in Restaurant Transactions

Restaurant Deal Making Exposed 35

What happens when a restaurant deal is nearly complete and a sudden change threatens to derail it? Material adverse changes (MAC) can turn a smooth transaction into a complicated situation. These changes often appear when you least expect them. From equipment failures to unexpected employee raises, the time between signing a contract and closing escrow is fraught with risks that can dramatically alter a business’s value.

Understanding Material Adverse Changes

In this episode, we break down material adverse changes—clauses found in nearly every restaurant purchase agreement that protect buyers and sellers when unforeseen events impact the fundamental value of a business. We share real examples from our own deals, including pandemic cancellations and undisclosed business loans. Even routine changes, such as a seller closing for vacation, can create major complications if not handled properly.

The Importance of Seller Disclosures

You’ll learn how to navigate MAC situations effectively. Thorough seller disclosures serve as your best defense. They help ensure that both parties are aware of any potential issues that could affect the transaction. When buyer and seller perspectives clash, disagreements can arise. Understanding how to handle these disagreements is crucial.

When to Bring in Professionals

Sometimes, bringing in a third-party professional can help resolve disputes. This is particularly important in MAC situations where the stakes are high. By understanding these risks and strategies, you’ll be better prepared to protect your restaurant transactions. Keeping deals on track is essential, even when unexpected changes arise.

Key Takeaways

• Why Material Adverse Change Clauses Exist: These clauses are vital in nearly all restaurant purchase agreements. They protect both parties from unforeseen events that could impact the transaction.

  
  

• Asset Sales vs. Going Concerns: Understanding the difference between asset sales and going concerns is crucial when evaluating business continuity during escrow.

  
  

• Triggers for MAC Provisions: Employee raises or changes in business hours during escrow can trigger MAC provisions. Awareness of these triggers can help mitigate risks.

  
  

• Updating Seller Disclosures: It is critical to update seller disclosures throughout the transaction as new issues arise. This transparency can prevent complications later on.

  
  

• Dual Agency Complications: Dual agency can complicate MAC situations. Knowing when to involve third-party professionals is essential for resolving conflicts.

  
  

• Residual Goodwill: Understanding what "residual goodwill" means in asset sales is important. Keeping doors open matters even without the business name.

  
  

By following these guidelines, you can navigate the complexities of restaurant transactions more effectively.

Listen to Podcast