Mergers and Acquisitions in the Brewing Industry

Transcription

1 715 Rollerton Road, Ste. 107 Charlotte, NC (704) Michael J. Denny Managing Partner Tel: (704) Bio: /attorneys Blog: Twitter: North Carolina Craft Brewers Conference November 9, All rights reserved.

2 Table of Contents Section 1 Introduction... Page 3 Section 2 Recent Craft Brewery Acquisitions.... Page 5 Section 3 M&A Geek Speak.. Page 7 Section 4 Strategic vs. Financial Buyers Page 16 Section 5 What if Big Beer Comes Knocking. Page 18 Section 6 Why do Brewers Sell?.... Page 24 Section 7 M&A Deal Process... Page 26 Appendix A Additional Information. Page A-1 2

3 Section 1 Introduction 3

4 Introduction A little about me... and thank you! About you? Why care about M&A in the brewing industry? Any war stories, successes, concerns for group discussion? 4

5 Section 2 Recent Craft Brewery Acquisitions 5

6 Recent Craft Brewery Acquisitions Wicked Weed to AB-InBev (strategic, controlling) Lagunitas to Heineken (strategic, completed controlling) The Bruery to Castanea Partners (financial, private equity, controlling) Monkey Paw Brewing to Coronado Brewing (strategic, controlling) Short s Brewing to Lagunitas U.S. Holdings (strategic, minority) Anchor Brewing to Sapporo (strategic, controlling) Magnolia Brewing to New Belgium (strategic, controlling, bankruptcy sale) Funky Buddha to Constellation Brands (strategic, controlling) Lord Hobo to Valterra Partners (financial, minority) 1. See VinePair, The Definitive Timeline of Craft Beer Acquisitions (2017), (last viewed November 8, 2017). 6

7 Section 3 M&A Geek Speak 7

8 M&A Geek Speak Like the brewing industry, M&A has its own unique jargon. 2 Not surprisingly, it s not as creative as brewing slang. Here are a few basic terms: The Deal Business Combination Merger Acquisition The Parties Purchaser (aka, Acquirer, Bidder, or Buyer) Target Company (aka, Target Co., Seller) 2. See Latham & Watkins, THE BOOK OF JARGON, GLOBAL MERGERS AND ACQUISITIONS (2017), (last viewed November 8, 2017). 8

9 M&A Geek Speak The Parties Acquisition Company (aka, Acquisition Sub, Acquisition Co.) Surviving Company Selling Shareholders (aka, Selling Stockholders, Selling Securityholders, Sellers) Accredited Investor Public Company (aka, Pubco) Private Company Financial Buyers (aka, Venture Capital, Vulture Capital, Private Equity) Strategic Buyers (e.g., Big Beer ) Advisers ( Representatives, Brokers, Investment Banks, Accountants, Attorneys, PR Firms, Transfer Agent, etc. 9

10 M&A Geek Speak Deal Structures Minority vs. Majority Stake Asset Deal (aka, Asset Purchase) Stock Deal (aka, Stock Purchase, Securities Deal) Merger Direct Merger Triangular Merger Forward Triangular Merger Reverse Triangular Merger Two-Step Acquisition Tender Offer followed by Back-End Merger Merger of Equals (See Additional Information below) 10

11 M&A Geek Speak Documents Offering Memo Offer Letters (Love Letters or Bear Hugs ) Letter of Intent (aka, LOI) Non-Disclosure Agreement (aka, NDA) Purchase Agreement (aka, SPA or APA) Merger Agreement Disclosure Schedules Escrow Agreement Employment Agreements 11

12 M&A Geek Speak Documents Noncompete Agreements Voting Agreements Lock-Up Agreements Standstill Agreements Assignment & Assumption Agreements (Copyrights, Trademarks, Liabilities, Domain Names) Fairness Opinion Legal Opinions (Due Authorization, No Conflicts, Securities, Litigation, Tax, etc.) Proxy Statement Prospectus 12

13 M&A Geek Speak Deal Terms Assumed & Excluded Liabilities Earn-Outs Excluded Assets Material Adverse Effect (aka, MAE) Purchase Price Purchased & Excluded Assets Purchase Price Adjustment Representations and Warranties Covenants 13

14 M&A Geek Speak Deal Terms Closing Conditions (Due Diligence, Financing, Consents, Regulatory Approvals, MAEs, Pending Litigation, Securityholder Approval, etc.) Termination Events Indemnification (Baskets and Caps) Closing (Sign & Close vs. Delayed Close) Funding! Closing Dinner! Deal Toys! 14

15 M&A Geek Speak Pubco Takeover Defenses Shareholder Rights Plans (aka, Poison Pills) Staggered Boards Advance Notice Provisions Shareholder Action by Written Consent Shareholders Ability to Call Meetings Number of Directors Fixed by Board Supermajority Voting to Amend Charter and Bylaws Supermajority Voting for Fundamental Transactions, etc. Others 15

16 Section 4 Strategic vs. Financial Buyers 16

17 Strategic vs. Financial Buyers Strategic Buyers Big Beer, competitors, etc. Synergies & economies of scale increased negotiating and purchasing power, eliminate duplicate functions and expenses, distribution and sales force synergies (including footprint synergies), eliminate competition, etc. (1+1=3) See Appendix A. Can pay higher purchase prices Indefinite investment horizon Not always sophisticated in M&A Financial Buyers Investors, Venture Capital, Private Equity, etc. Management efficiencies, debt structure, governance, etc. Uses debt for acquisitions; leverage increases returns Cash flows to service high debt levels Retain management team Exit strategy IPO, future sale, liquidate, short-termism, etc. 17

18 Section 5 What if Big Beer Comes Knocking? 18

19 What if Big Beer Comes Knocking? Common Questions Should we be concerned about a hostile takeover? Do we have a duty to negotiate, or can we just say no? What if they offer a significant premium for our brewery? What if we approve a bad deal or inadequate sales price? What if our minority securityholders disagree with our decision no to sell (or to sell)? Short Answer These shouldn t be major concerns for a privately held brewery as long as: It has sound organizational documents and governance structure (e.g., Articles of Organization and Operating Agreement); and Its board, officers, and controlling securityholders exercise their fiduciary duties. 19

20 What if Big Beer Comes Knocking? Sound Organizational Documents and Governance Structure Clear voting power and ownership structure Good governance Fundamental transaction approval requirements (e.g., sales of substantially all assets, mergers, etc.) Security transfer restrictions Rights of first refusal, Drag-along rights, etc. 20

21 What if Big Beer Comes Knocking? Satisfy Fiduciary Duties 1. Consider Applicable State Law North Carolina, Delaware, etc. 2. Standard Fiduciary Duties Business Judgment Rule If a director or officer satisfies the fiduciary duties of good faith, due care, and loyalty, then decisions will not be second guessed by the courts. Best interests of company and securityholders What about best interests of employees, community, etc.?! Reasonable inquiry Informed of reasonably available information (e.g. updated strategic plans, valuations, projections, etc.) Good faith reliance on advice of officers and experts (e.g., financial advisers, attorneys, etc.) Interest of company over personal interests (e.g., conflicts of interest, corporate opportunities, etc.) 21

22 What if Big Beer Comes Knocking? Satisfy Fiduciary Duties 3. Enhanced Fiduciary Duties Delaware and other states have recognized enhanced fiduciary duties under certain circumstances: Takeover defense measures (e.g., poison pills) Must be reasonable in relation to perceived threat (Unocal) Sale of control (e.g., shopping the company) Duty to make a reasonable effort to obtain the highest possible value in a change of control. If Revlon duty is triggered, may no longer just say no (Revlon). Must focus primarily on selling price. 22

23 What if Big Beer Comes Knocking? Satisfy Fiduciary Duties 4. Controlling Securityholder Duties A controlling securityholder owes fiduciary duties to minority securityholders, but these are not as clear as director and officer duties... Red flags if: Controlling securityholders are on both sides of transaction (e.g., affiliated with buyer, management rollovers, going private transactions, etc.) Transaction will result in special benefits for controlling securityholders (e.g., merger resulting in liquidation preference for preferred stockholders and nothing for common stockholders) 23

24 Section 6 Why Do Brewers Sell? 24

25 Why Do Brewers Sell? Liquidity for investors cash and/or publicly traded acquirer stock Lock in high price now mitigate future risk Strategic business reasons (see Appendix A) Diversify portfolio Pursue other opportunities Retirement planning, life events, etc. Others? Unexpected Events? Sometimes, life gets in the way... 25

26 Section 7 M&A Deal Process 26

27 M&A Deal Process Unsolicited Offers and Responses Strategic Plan, Projections, and Valuations Periodic Updates and Reviews Prepare Company Engage advisers (Financial adviser, M&A Attorney, Accountant) Internal Due Diligence Prepare Data Room (e.g., Virtual Data Room) Draft Offering Memo Organization, Corporate Documents, etc. Marketing Process Non-Disclosure Agreements (Confidentiality, etc.) Auction vs. Targeted Negotiations 27

28 M&A Deal Process Management Meetings Due Diligence Receive and Review Offers Letter of Intent (No-Shop, Standstill, etc.) Negotiate Purchase Agreement and Ancillary Documents Sign Purchase Agreement Announce Transaction Satisfy Closing Conditions Regulatory Approvals, Shareholder Approval, Consents, etc. Closing 28

29 Appendix A Additional Information A-1

30 Additional Information Detailed Merger and Disclosure Documents Widmer Redhook See Joint Proxy Statement/Prospectus for merger of equals between Redhook Ale Brewery and Widmer Brothers Brewing Company (May 13, 2008), The proxy statement/prospectus provides detailed disclosure related to the merger, including reasons for merger, background of negotiations, opinions of financial advisers, valuations, merger agreement and ancillary documents, business plan of combined companies, risk factors, executive compensation, etc. Anheuser-Busch InBev See Preliminary Proxy Statement for merger between Anheuser-Busch and InBev, A-2

31 Additional Information Electronic Copy of this Presentation An electronic copy of this presentation is posted on my blog at Legal History and Purpose of North Carolina s Three-Tier Beer Distribution System See Michael Denny, What s All the Fuss About North Carolina s Beer Distribution Laws? Part II The Three-Tier System (October 29, 2017), A-3

32 Fin.