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Market Out
Practical Law Glossary Item 5-503-9491 (Approx. 3 pages)
Glossary
Market Out
Generally, a condition precedent in an acquisition agreement or tender offer that allows a buyer to avoid the closing if there is a significant disruption in the financial, banking, or stock markets. Market-out clauses protect a buyer by reducing its additional exposure to market-related events that are beyond the control of the parties involved in a particular transaction. These events may include a:
- Suspension (or material limitation) in trading on a specified securities exchange.
- General moratorium on banking activities or a material disruption in securities settlement or clearance services.
- Limitation on prices of publicly traded securities.
- Material limitation by a government authority on the issuance of credit.
A market-out provision can be used in various other contexts:
- In an acquisition agreement, the Material Adverse Effect (MAE) definition might include a market-out exclusion, meaning that an MAE is not triggered by any of the specifically identified events.
- In an underwriting agreement for a registered offering or a purchase agreement for a Rule 144A/Regulation S offering, the market-out provision allows the underwriters or initial purchasers to terminate the agreement on the occurrence of certain events (including some or all of the events described in the first bullet list above) that can adversely affect the underwriters' or initial purchasers' ability to market or enforce contracts for the sale of the offered securities.
- In a bank commitment letter, the market out is a condition precedent to lending that requires that there be no adverse change or disruption in the financial, banking, or capital markets that could impair the syndication of the credit facilities.
For examples of market-out language in termination provisions and market-out closing conditions in underwriting agreements for recent SEC-registered offerings, visit the What's Market Underwriting Agreements database.