Subscribe now

Another packaged food company gets taken out.

On July 21, Utz Brands ($UTZ) announced it was being taken private by Germany-based Intersnack in partnership with the Lisette and Rice founding families, in a $2.9 billion transaction. Intersnack is offering $14.25 for each outstanding share of Utz, a premium of ~91% to the previous closing price, with the two families rolling their existing stakes. After closing, Intersnack will own 50% of the company, with the Lisette/Rice families owning the rest.

The transaction reads like a case of the founding families not enjoying their experience as a public company since their 2020 SPAC merger. It was one of the more successful SPAC deals for a while, peaking at ~$23/share in 2021 but then heading progressively down to as low as $6.78 in 2026.

The take-out price of $14.25 is a very nice outcome for whoever bought the stock in the few months leading up to the acquisition. The transaction multiple of 13.2x LTM EBITDA shows that a branded snacking/packaged foods business trading at a mid-single-digit multiple might be a good value signal.

Utz was able to raise Intersnack’s initial $11/share offer by 30% to $14.25, the last few cents in exchange for dropping the go-shop.

Citi (advisor to Utz) seems to have made the match without a formal mandate or process, picking the sell-side (the right choice) only when the deal got serious and Intersnack asked them to be on the buy-side. A few interested parties got wind of a potential deal, but no real competing offer ever surfaced. The filing also shows the families had little interest in approaching PE buyers as they believed they would impose cost cuts.

Transactions cited by Citi in the Utz Brands Fairness Opinion:

The other side of the 2021 IPO unwind: ADW comes for Driven Brands

In the Spring edition, I wrote about Leonard Green and General Atlantic taking their two portfolio companies, Mister Car Wash ($MCW) and European Wax Center ($EWCZ), respectively, private again at a fraction of their IPO price.

Here’s the same story told from the other direction: what happens when the PE sponsor won’t mop up.

Driven Brands ($DRVN) operates a group of automotive service brands including Auto Glass, Take Five Oil Change, Meineke and Maaco. Roark took the company private in 2015, IPO’d it in January 2021, and still holds ~62% of the shares per the latest proxy. The company went public at $22.00 and Roark later sold $354m through a secondary at $29.50 in August 2021, but the stock hasn’t broken $20 since 2023. In February 2026, the company announced it had to restate its past financials, causing the stock price to fall 30% in a single day.

On March 26, hedge fund ADW Capital, then a 2.5% shareholder, sent a letter to the board pushing for a sale or break-up of the business based on a potential sum-of-the-parts valuation of $32 per share.

On April 30, ADW, having upped its stake to 3.7%, went public with a non-binding $18.00/share all-cash takeover proposal, a 41% premium to the April 29 close of $12.74. That equates to an enterprise value of ~$5.0 billion, or about 10.4x 2026E Adj. EBITDA guidance of $480m (after adding back $50m of restatement-related expenses). For comparison, Mister Car Wash got taken private at 9.1x LTM EBITDA, so not exactly a low-ball price. Of course, only ADW knows if its buyout offer is serious or just an attempt to stir the pot.

On August 3, the Driven board rejected the ADW proposal, calling it “non-binding,” “highly conditional,” and one that “significantly undervalues” the Company.

That prompted a scathing response from ADW on August 7. In a letter in which they disclosed that they had once again upped their stake, now to 4.8%, ADW once again called for a full sale process or break-up of the company, calling management’s standalone plan “WILFUL DELUSION” (emphasis theirs!).

ADW appealed to the minority shareholders and the board’s fiduciary duties but, ultimately, Roark - as the majority shareholder - does not have to support any such sale process.

It will be interesting to see how long ADW Capital keeps agitating, but the stock is back to about $12.50, the price just before the first ADW letter in late March. We of course don’t know if Roark is working on something confidentially, but if there is indeed some strategic process going on, it would be odd not to engage with ADW at all unless it’s a significantly higher value and/or close to concluding.

Kontoor Brands ($KTB) swaps its Lee jeans for some Helly Hansen gear.

In May, Kontoor Brands announced the sale of its Lee business to Authentic Brands for up to $1 billion, with $750m up front and an earn-out of up to $250m. This follows the acquisition of Helly Hansen in 2025 for around $900 million.

The closet makeover completes a transition to a more diversified geographic and channel mix while rationalizing the portfolio to two distinct brands in Helly Hansen and Wrangler. With a little luck, KTB will be close to even in terms of cash spent and received, and end up with a faster-growing, yet slightly smaller, business.

KTB acquired Helly Hansen for ~11x fwd EBITDA and is selling Lee for ~10x fwd EBITDA before the earnout, which is a pretty good net result given the characteristics of each.

Looks like a smart capital allocation exercise.

Recent Apparel deals:

Former SPAC Waldencast ($WALD) sells Obagi Medical to Bridgepoint for $460m… along with the founders of WALD

Waldencast was a 2021 vintage SPAC founded by former L’Oréal President Michel Brousset.

In 2022, Brousset orchestrated a three-way merger with skin care brand Obagi Medical (then valued at $858m) and color cosmetics brand Milk Makeup (then valued at $382m) to create what was to be a “best-in-class multi-brand beauty and wellness platform.”

Things didn’t go as planned: dizzying valuation, missed numbers, acquisition impairments, SEC investigation - the usual post SPAC stuff. Stock down 80%+.

In June, WALD announced the sale of Obagi Medical to PE firm Bridgepoint for an EV of $460m, barely half of what it paid four years ago. Today’s valuation equates to about 2.8x Obagi’s 2025 revenue and what looks like 23.7x a depressed 2025 EBITDA of $19.4m. The multiple based on 2024 EBITDA is 15.1x. Either way, a pretty good valuation unlock given the state of the company.

In an unusual move, Brousset and WALD co-founder Hind Sebti will go with the Obagi business, leaving Milk Makeup Co-Founder Mazdack Rassi at the helm, along with Chair Felipe Dutra.

Milk Makeup will now be a standalone brand generating $110m of revenue and $15m of EBITDA in 2025, with no debt after paying off $178m at closing, and hopefully some cash proceeds left from the sale - but also ~$18m of central costs staying behind that will need to be slashed.

Still a long way to go to recover value: stock currently at $1.35/share with a market cap of about $170m.

Two multi-billion-dollar ingredients deals in just a week

On May 29, IFF ($IFF) sold its Ingredients Business to CVC Capital for $4.3 billion, or 10x EBITDA, to “focus on its innovation-driven businesses: Taste, Scent, and Health & Biosciences.”

Just a week later, on June 8, Ingredion ($INGR) announced the acquisition of UK stalwart Tate & Lyle PLC ($TATE) at an enterprise value of $5.0 billion.

The 595p/share offer for TATE is a 59% premium to the pre-rumor price of 375p on May 13, but is still “just” 8.8x TATE’s LTM EBITDA compared to the ~10x paid by CVC.

While IFF is slimming down to focus on higher-margin segments and Ingredion is bulking up to move further into specialty and new markets, these deals confirm that the specialty food ingredients sector is consolidating around scaled formulation platforms, not single-ingredient portfolios. The strategic prize is the ability to keep up with and solve CPG customers’ hardest problems across texture, taste, sugar reduction, fortification, clean label, affordability, and speed-to-market.

Grant Thornton’s acquisition of CBIZ likely to accelerate overhaul of professional services sector

Not exactly a consumer deal, but one that involves a lot of consumers (people): on July 29th, Grant Thornton announced that it was acquiring CBIZ ($CBIZ), another accounting firm, in an all-cash transaction worth $5 billion, or about 11x LTM EBITDA. The deal brings together the eighth and ninth largest US accounting firms (per The 2026 IPA 500) in a combination that would vault it to #5.

New Mountain Capital took a majority stake in Grant Thornton with a growth investment in 2024 and is expected to contribute (per the proxy statement) another $835 million to support the acquisition.

This follows other significant activity in the professional services space, including H.I.G. Capital’s investment in HBK in August 2026, Hellman & Friedman and Valeas Capital Partners’ investment in Baker Tilly in 2025 and Citrin Cooperman’s sale of a majority stake also to New Mountain in 2022, to name a few.

This is not exactly a secret playbook: today there are more than 40 private equity-backed accounting platforms, according to an article by Thomson Reuters.

Accounting and tax advisory firms are at an interesting crossroads: increasingly complex and demanding accounting, tax, compliance and reporting requirements continue to drive demand for services worldwide, while, at the same time, the sector is primed for AI transformation. Add to that the erosion of the traditional partnership career model, and you have many of the ingredients for a significant structural industry overhaul.

Recent transactions in Services sector:

In case you missed it:

The Hunt for Transaction Comps

Any current or former junior investment banker will know the pain of building transaction comp sets. It’s tedious, time-consuming work, from identifying the relevant transactions to gathering the often ambiguous data for each deal. A solid set of transaction comps is worth its weight in gold.

Working at a small private equity firm without a bullpen full of investment banking analysts, that work becomes a hunt. While databases like CapIQ and Pitchbook have transaction screeners, I have found them to be often lacking in accuracy and filled with noise.

I eventually turned to SEC filings where, as always, all the good stuff is buried. Most public U.S. M&A deals will include a fairness opinion regarding the consideration to be received by the shareholders rendered by an investment bank. A summary of the analysis will then be included in the transaction’s merger proxy statement or tender offer document. Investment banks hate making their work public, but over the past twenty years, the SEC has pushed for greater transparency, and more details of valuation work are being included in filings. In going-private transactions, for example, entire presentations are included.

While investment banks make mistakes, they take their fairness opinions seriously, especially in larger transactions where these underpin their M&A work. The valuation analysis is thus generally well scrubbed and reliable.

What previously often looked like this:

Now often looks like this:

And sometimes you even get full access to the presentation if it’s a take-private transaction.

So over the past few years, I began occasionally clipping transaction comps from these SEC filings when needed for an analysis or report. Then I started organizing them into a spreadsheet. Then I started adding newly announced deals from press releases. Then I started arranging them by sector. Then I started actively seeking missing transactions. You get the drift.

The issue with spreadsheets is that they are not great for broad sharing or public consumption.

So I enlisted Claude and Codex to build a database and a website.

Subscribe now

Introducing the Mergers & Tribulations Transaction Database

Armed with my deal spreadsheet as the base and some Fable 5 credits, I enlisted Claude to design my database and ChatGPT Codex to build the website (Note: I split the work that way for no particular reason. The two actually played quite well together. Much better than two investment banks working on the same deal).

The result is an interactive website that turns dense merger filings and fairness opinions into a searchable database of deal terms, valuation multiples, and financial-advisor analyses. See a multiple in a chart and a sortable table; include/exclude transactions from the chart, click any number and land on the exact fairness opinion it came from.

You can find it here: https://mergersandtribulations.com/

Transaction Multiples

The core feature is a database of the most commonly used transaction multiple, EV / LTM EBITDA. The landing page shows the full list of transactions, all in the broader consumer & retail sectors. From there, the chart and accompanying table can be filtered across multiple criteria, including sub-sector, transaction year, advisor, target type, buyer type, and others.

Last twenty Packaged Foods deals:

Accompanying filterable transaction tables:

Deal Detail Pages

Each unique transaction has its own page that displays the different observations of that deal. For example, Pinnacle Food’s acquisition of Boulder Brands is referenced in multiple fairness opinions (including its own). We also find that the investment banks don’t always come up with the same answer. In this case, the EV/LTM EBITDA multiple ranges from 14.0x to 14.7x (there are more egregious divergences, too).

Fairness Opinions Summary

There is also an overview of all the fairness opinions in the database, showing each of the financial advisors and the EBITDA multiple range they selected for that specific transaction.

Fairness Opinion Detail

Each fairness opinion also has its own page, containing some key characteristics for that deal (as available), as well as the actual transaction comp table and EBITDA range used by the advisor. Additional details (e.g. WACC ranges, trading comps) will be pulled out from the filings and shown there in future updates.

Olaplex x Henkel Fairness Opinion:

Transactions cited by JPMorgan in the Olaplex fairness opinion:

Subscribe now

Advisor Valuation Ranges

While the precedent transactions themselves are the core of the database, it’s also interesting to look at the valuation ranges the investment banks selected for each fairness opinion (that is, to the extent they explicitly selected a range). This can also be sorted/filtered in various ways.

Packaged Foods advisor selected valuation ranges:

DCF Assumptions

We can also see what WACC ranges and Terminal Value assumptions the advisors selected for their Discounted Cash Flow analyses.

WACC ranges (General Retail Sector):

WACC Ranges over time (Packaged Foods):

Why Are There Missing Transaction Values And Multiples?

The short answer is: only directly sourced information is included. If the transaction table did not include a transaction value, then none is included.

However, public targets that were subject to a fairness opinion will typically disclose enough information in the proxy statement to derive the transaction value and the multiple by hand.

More to come

This project is a work in progress. New deals and fairness opinions will be added as they are announced. Sector coverage will also be extended (Office and Home Furnishings currently being added).

This project has been fun and a great way to leverage AI to learn some new skills and build something from scratch without any coding experience (…since C++ in college).

The database lives at www.mergersandtribulations.com

Go check it out. Subscribe to my Substack for updates.

Feedback, ideas, and suggestions are most welcome in the comments.

Leave a comment

But there were also some interesting smaller situations, like the take-privates of Mister Car Wash (NASDAQ: MCW) and European Wax Center (NASDAQ: EWCZ). While Advent was able to sell OLAPLEX to a strategic buyer, the private equity owners of MCW and EWCZ chose to buy out the public shareholders at a fraction of the IPO price. What is the commonality between these three companies? All three went public in second half of 2021.

Also worth mentioning are the acquistions of household brands Nathan’s Famous by Smithfield, Bachan’s by Marzetti and Purell (Gojo Industries) by Clorox.

OLAPLEX: Advent sees 17x return evaporate

When OLAPLEX (NASDAQ: OLPX) ended its first day of trading on September 30, 2021, at what was then the height of the post-COVID DTC IPO boom, it boasted a stock price of $24.50 and a market capitalization of more than $16 billion. Champagne corks surely popped that evening at the offices of private equity firm Advent International, as they were sitting on a paper return of ~$14 billion, or 17x the $816 million investment they had made less than two years earlier.

The stock peaked at about $29 in early 2022, then spent four years giving it all back… a 2023 hair-loss class action (later dismissed), three CEOs, a flat-to-declining top line, and a brand identity that drifted from clinical repair into me-too prestige. At the time of the IPO, OLPX was projecting to crack $1bn of revenue by 2024. Fast forward four years: it delivered $423m in 2025.

On March 26, 2026, Henkel announced that it was acquiring OLAPLEX for $2.06 per share, a 93% decline from its peak, but still a 55% premium to the prior day’s close, for a $1.5bn transaction. That’s still 3.5x LTM Revenue and 13.5x LTM EBITDA.

Henkel buys a cult professional brand at a fraction of its peak valuation and slots it next to Schwarzkopf, Joico and Kenra in what has quietly become one of the largest hair care platforms outside L’Oréal. The price is full on a depressed earnings base, but the IP and salon-channel reach are the real assets.

As for Advent, no need to shed any tears. While they did not sell one share since the IPO, they had by then already returned close to $2bn, so what was then a 17x return was now “only” 3.6x.

The PE round-trip: Mister Car Wash and European Wax Center to go back private

Two sponsor-led take-privates dropped within a week of each other, both running the same play: PE firm IPOs its portfolio company into the post-COVID retail boom of summer 2021, public-market reality sets in, stock collapses, sponsor now mops up the residual stub at a “premium” that is still well below the IPO price. The other side of the argument is that they have long term conviction, feeel the business is undervalued and are re-upping.

Mister Car Wash (Nasdaq: MCW). Leonard Green is taking out the 33% it doesn’t already own at $7.00/share, implying $3.1bn EV. That’s a 46% premium to “unaffected’” price and implies a multiple of 9.1x 2025 EBITDA but still 53% below the $15.00 IPO price from June 2021 (the stock popped 49% to $22.40 on day one, that was the high-water mark).

Fine print: LGP owns 67%, so no minority vote, but, based on the proxy statement, the company conducted a bona fide sale process during the course of 2025, engaging with 17 parties excluding LGP and receiving three (but somewhat shaky) non-binding offers. LGP entered the fray only in late November, starting with a $6.25/share offer and eventually closing at $7.00/share.

Fun Fact: LGP will be able to take MCW private without having to commit any equity by simply leveraging the existing balance sheet further.

Bonus: you can find the fairness opinion presentations of the MCW advisors below.

• Centerview

• Bank of America

Next is European Wax Center (Nasdaq: EWCZ). General Atlantic is taking out the 58% it doesn’t already own at $5.80/share, implying a $330m equity value and $641m enterprise value. That’s a 45% premium to the prior close, 8.8x 2025 EBITDA but 66% below the $17.00 IPO price from August 2021.

Structural wrinkle: GA owns only ~42%, so this one actually needs a majority-of-the-minority vote. Plaintiffs’ firms have noticed.

Bonus: you can find the EWCZ fairness opinion presentation of Moelis here.

Thesis in a wash and a wax: the 2021 IPO cohort of PE-backed consumer names is being repatriated. Sponsors who priced into the boom and couldn’t sell down the rest at decent levels are using public-market weakness to mop up the float at a discount and finish the job in private. The premiums look good against the last week’s tape. Against the IPO prospectus, not so much.

Share

Smithfield Foods pays up to keep Nathan’s Famous for itself.

On January 20, Smithfield Foods (NYSE: SFD) announced it was acquiring Nathan’s Famous (NASDAQ: NATH) for $102 per share, what looks like meager 10% premium to previous day’s closing price. The transaction values Nathan’s at an enterprise value of ~$450m, or 2.9x LTM Revenue of $155m and 12.4x LTM Adj. EBITDA of $36m.

Famous for its, well, famous hot dogs and annual hot dog eating contest held at its iconic Coney Island location, Nathan’s currently operates more like a brand company rather than a packaged foods manufacturer. All but 4 of its 234 restaurants are franchised, Product Licensing makes up 25% of Revenue and ALL of the profit. and even its Brand Product Program (62% of Revenue), which distributes products into foodservice channel is all co-packed. The business is a cash cow, with about 100% of Net Income turning into OCF and barely $200k of capex, but profitability has been lagging recently due cost inflation.

Smithfield has been licensing Nathan’s products for the retail channel as well as manufacturing and distributing them into foodservice for more than 10 years, so this transaction gives it ownership of an iconic American brand into perpetuity.

Recent buyers of NATH might be grumbling a bit as the stock was over the $102 offer as recently as November. But with insiders already having voted their 29.9% stake, this looks like a done deal.

Marzetti × Bachan’s: USD 400m for grandma’s recipe

Marzetti (Nasdaq: MZTI), formerly known as Lancaster Colony, is paying $400m for Bachan’s, the Japanese-American barbecue sauce brand founded in 2019 by Justin Gill out of his family home in Sebastopol, CA (bachan = grandma in Japanese; the recipe is hers). Bachan’s did $87m in net sales in 2025, growing at a 48% three-year CAGR between 2022 and 2025.

The metric: ~4.6× LTM sales, all cash, funded with cash on hand plus additional financing. Marzetti hasn’t disclosed EBITDA — but for a five-year-old DTC-native sauce brand growing at that clip, it’s almost certainly a revenue multiple, not an earnings one.

Bachan’s is the latest entry in what has quietly become the most active sub-category in CPG M&A: branded, founder-led, clean-label sauces with a defined Gen Z / millennial cohort. Consumers are using condiments to add heat, global flavor, and personality to everyday meals.

• Higland Partners / Tapatío (2026): 55 year old company and #5 hot sauce brand in what is estimated to a $1bn+ market in the US. (Terms were not disclosed).

• McCormick / Cholula (2020): $800m or ~8x sales and 24x EBITDA and when L Catterton sold to MKC. Still the high-water multiple in hot sauce.

• McCormick / Reckitt food (2017): $4.2bn and 20x EBITDA for Reckitt’s food business that included French’s Mustard and Frank’s RedHot. The deal that built the platform.

Marzetti’s sauce business has been built almost entirely on licensing — Chick-fil-A, Olive Garden, Buffalo Wild Wings, Subway, Arby’s, Texas Roadhouse. Bachan’s is the rare scaled, owned brand and reads as Marzetti’s answer to the McCormick playbook: a proprietary asset they can run through their retail and foodservice distribution rather than a sauce they pay royalties to make. Ciesinski noted on the call that Bachan’s “significantly over-indexes with millennials and Gen Z” — a polite way of saying it reaches the cohort the licensed restaurant sauces don’t.

Sysco bets big on Jetro Restaurant Depot

Sysco is making its biggest bet ever, a $29.1 billion acquisition of privately held Jetro Restaurant Depot, the #1 U.S. cash-and-carry foodservice wholesaler. The consideration is split between $21.6 billion in cash (funded largely by $21 billion in new debt) and 91.5 million Sysco shares. This implies 13.9x Jetro’s CY2025 EBITDA (before $250 million in projected synergies), putting the deal at the top of food distribution transactions.

The strategic logic is clear: Sysco’s traditional broadline delivery model skews toward larger, higher-volume accounts. Jetro’s 166 warehouse-format stores serve the long tail: over 725,000 independent restaurants and small operators who self-pick. The overlap is minimal, the margin profile is superior, and the channel has proven resilient across cycles. Jetro generated roughly $2.1 billion of EBITDA on $16 billion of revenue in 2025, a ~13% margin that materially exceeds Sysco’s core distribution economics.

The risk is execution and leverage. Sysco is pausing buybacks and taking on significant debt to fund this, betting it can de-lever by at least 1.0x within 24 months while simultaneously rolling out 125+ new Jetro locations over the next two decades. That’s a lot of plates to spin, but if Sysco integrates procurement without disrupting Jetro’s lean, founder-driven culture, this could reshape U.S. foodservice distribution.

McCormick x Unilever: The $45 Billion Flavor Recipe

Unilever is combining its Foods division with McCormick in a “Reverse Morris Trust” valued at $44.8 billion creating a $20 billion revenue “flavo[u]r powerhouse” (note: Unilever’s press release uses “flavour” while McCormick’s uses “flavor”. Culture clash already?) while Unilever pivots to a €39 billion pureplay HPC company. Unilever and its shareholders receive 65% of the combined entity plus $15.7 billion in cash, valuing Unilever Foods at 13.8x EBITDA; McCormick shareholders retain 35%.

A Reverse Morris Trust is a transaction in which a company (Unilever) spins off a division (Unilever Foods) to its shareholders and immediately merges it with the acquirer (McCormick), allowing the seller to avoid triggering capital gains tax on the transaction. A key requirement for the tax-free treatment is that the seller ends up with a majority of the shares in the combined entity.

So McCormick is effectively buying the larger business at 13.8x EBITDA, diluting its shareholders by 65% but maintaining management control.

Foods has been the drag on a portfolio where Beauty & Personal Care grew faster and carried better margins, and this transaction completes Unilever’s conglomerate teardown that started with the spin-off of the ice cream business. For McCormick, this is the transformational acquisition the company has been circling for years: instant scale in sauces and condiments (Hellmann’s, Knorr, Maille) layered onto an existing spice-and-flavorings platform (Frank’s, Cholula, French’s).

The real question is execution. While McCormick has a good track record in M&A, this is a very big bet: the multiple paid is high for lower growth, albeit in a global food business; combined leverage lands at ~4.0x EBITDA at close; and the share dilution is exacerbated by MKC’s ten-year low multiples.

The transaction’s ultimate success will hinge on the promised $600 million in synergies (3% of combined revenue) and MKC’s ability to drive incremental growth over three years is ambitious but not outlandish for a deal of this scale.

Markets were lukewarm: McCormick shares fell ~6% on the announcement. The Kraft Heinz playbook of consolidation-led value destruction looms large in investor memory. McCormick will need to prove that “flavo[u]ring calories rather than competing for them” is more than a tagline.

Deal website: https://www.globalflavorleader.com/

Clorox ♥ Purell. It was meant to be.

In January Clorox (NYSE: CLX) acquired privately owned GOJO Industries, the maker of Purell, for $2.25 billion in cash, or $1.92 billion when including estimated tax benefits of $330 million.

The transaction values GOJO at approximately 2.8x sales of ~$800m and roughly 11.9x EBITDA of ~$160m, net of said tax benefits (14.1x without).

Founded in 1946, GOJO created Purell in 1988 as a daily-use hand sanitizing solution for the foodservice sector, later launching it at retail in the late 1990s. Seemingly wanting to focus on B2B and manufacturing, GOJO sold the consumer rights to Purell to Pfizer’s Consumer Health division in 2004. PCH would market to B2C/retail channels, while GOJO would keep the B2B business and manufacture for Pfizer. J&J then inherited the business when it acquired PCH from Pfizer in 2006. In what was a key strategic move, GOJO reacquired the brand from J&J in 2010, bringing the B2C and B2B businesses back under common ownership.

For Clorox, this adds a household brand with billion-dollar potential to its portfolio. Purell’s leadership in hand hygiene, commanding a 60% market share in away-from-home dispensing systems, and GOJO’s professional distribution network spanning healthcare, hospitality, and commercial facilities. Clorox expects $75 million in annual cost synergies by year three, primarily from supply chain integration and overhead rationalization, but one would think that NPD and driving the brand into new markets should create more value than that.

This installment picks up where we left off: the strategic alternatives review that would ultimately lead to the Nordstrom family’s and Liverpool’s $24.25 per share offer, less than half the price the board rejected six years earlier. Through the detailed disclosures required for going-private transactions, we’ll trace the eighteen-month process from strategic review through signing, examining the search for partners, the price negotiations, and the banker presentations that reveal how Wall Street values a declining retailer in 2024.

What follows is the story of how twenty potential buyers became one, how $23.00 crept up to $24.25 over three months of negotiations, and how the Nordstrom family would finally succeed, on their second attempt, in taking the company bearing their name back into private hands.

Subscribe now

I. The Strategic Alternatives (June 2023 - February 2024)

While Ryan Cohen’s meme-stock assault fizzled by mid-2023, it served its purpose: forcing Nordstrom’s board to confront what everyone knew but no one wanted to say out loud. At their June 2023 off-site strategy session, the board invited Morgan Stanley (fresh from defending the company against activism) to deliver the diagnosis.

The prognosis was grim. The share price was stuck in the teens, sales growth had yet again stalled, and margin recovery had as well. Nordstrom’s trading multiple had become range-bound, trapped by what bankers delicately termed “persistent negative public market investor sentiment around the Department Store category and the industry’s long-term prospects.” Translation: Wall Street had written off the entire sector. No amount of operational improvement seemed capable of moving the needle. During these discussions, Erik and Pete Nordstrom expressed their support for a strategic review, including a potential sale of the company.

The board confirmed that management should work with financial advisors to evaluate strategic alternatives. Centerview Partners was brought in alongside Morgan Stanley to provide a second opinion. Over the following months, CFO Cathy Smith and her team, with both banks in tow, constructed the full menu of options.

The Full Spectrum of Alternatives

The bankers laid out the standard set of strategic alternatives. On the conservative end sat capital return strategies such as increasing dividends or share repurchases, although these felt like rearranging deck chairs. Sale-leaseback transactions could monetize Nordstrom’s real estate portfolio, but would saddle the company with rent obligations in perpetuity.

More radical measures were also on the table: spinning off the Nordstrom Rack business, the same playbook activists were pushing at Macy’s and Kohl’s. Or separating the e-commerce operation, the fashionable move circa 2021, as HBC had partnered with Insight Partners on Saks. The company could even approach Liverpool, sitting on a 9.9% stake and flush with cash, to increase its position through a tender offer.

But the one that kept surfacing in every discussion was a take-private transaction. This appealed intellectually: private ownership would eliminate quarterly earnings pressures, allow long-term investments, and remove the valuation multiple albatross. Yet it confronted an immovable object: the Nordstrom family’s 33% stake.

Under Washington State law, mergers require approval by two-thirds of outstanding shares. The family had made clear in 2017 that “as heirs to the co-founder, and following four generations of family leadership of the business that bears their name,” they had “no interest in a sale of their shares” to a third party. Erik and Pete reiterated this position in 2023, though they emphasized they would “support any process the Nordstrom Board believed was appropriate.”

The math was unforgiving: a sale to third parties was dead on arrival without family consent. Any transaction would need to be with the family, not around them.

The $2.4 Billion Problem

Then there was the financing riddle. Morgan Stanley and Centerview flagged a critical constraint: Nordstrom’s $2.4 billion of outstanding Senior Notes contained protective change-of-control repurchase provisions. If the notes were downgraded to below investment grade in a change of control, Nordstrom would be required to repurchase them outright. The notes carried favorable interest rates locked in before the 2022-2023 rate spike, and refinancing them would be “unattractive to a potential acquiror because of the Senior Notes’ favorable interest rates and the difficulty of obtaining comparable replacement debt financing in the prevailing capital markets environment.” Every incremental dollar of leverage in an LBO increased the likelihood of triggering this deal-breaker.

The elegant solution? A transaction with “substantial equity rollover from Nordstrom’s existing shareholders,” meaning the family and Liverpool. By minimizing new debt, a rollover-heavy structure could potentially sidestep the rating downgrade and preserve the favorable Senior Notes. This realization narrowed the aperture: the path forward wasn’t just a transaction with the family; it was a transaction substantially funded by the family and Liverpool.

II. The Suitor Search (November 2023 - March 2024)

Twenty Parties, Seven NDAs, One Bid

By November 2023, the board had affirmed its interest in exploring a consortium take-private. Morgan Stanley and Centerview received authorization to “privately contact parties involved in the department store or specialty retail industries or with interest in retail investments.” The banks cast a wide net: 19 parties were contacted in total, including three strategic players, eleven sovereign wealth funds and family offices, and five financial sponsors. A sixth sponsor would make an unsolicited inquiry.

Several of these sponsors were veterans of the 2017-2018 go-private attempt; the same firms that had watched that process collapse were being invited back for another go at it. Likewise, the days of sovereign wealth funds bidding for luxury department stores were long gone: all of them passed. One has to admire the bankers’ optimism.

Between November 2023 and January 2024, just seven parties executed NDAs: Liverpool, “Strategic A”, and “Sponsors A through E”. Each agreement included standstill provisions and, critically, prohibited counterparties from discussing financing with potential equity sources, meaning the Nordstrom family and Liverpool, without the company’s consent. The bankers made clear, however, that family members and “potentially Liverpool might be willing to participate in a transaction as rollover equity.” Strategic A’s interest was short-lived, dropping out following a “diligence preview” discussion by videoconference in mid-December.

The message was carefully calibrated: we have a family that controls a third of the company, and a Mexican retail partner with a 10% stake and deep pockets. If you want to buy Nordstrom, you’ll need to convince them to roll their equity alongside you.

The January-February Management Presentations

Management conducted in-person presentations for all six remaining parties in January and February 2024. Erik and Pete Nordstrom personally walked through the company’s operations, performance, strategy, and financial projections through fiscal 2026.

Liverpool’s attendance was particularly awkward. Before its presentation, Liverpool’s representatives reminded Nordstrom that their participation was “passive” and they were “only attending the management presentation in the context of the monitoring of its investment but were not authorized by the Liverpool board of directors to discuss any specifics relating to a potential transaction.” Liverpool was playing both sides: learning about the business while maintaining plausible deniability about deal intent.

Follow-up diligence sessions narrowed the field to just three sponsors, Sponsors A, C and E.

The Family Enters the Chat

On February 7, Erik and Pete Nordstrom informed the board they wanted to “explore a potential go-private transaction” and were “interested in taking an active role” in the process, including outreach to potential equity partners. They believed other Nordstrom family members and Liverpool might be interested in rolling equity and partnering in a transaction.

The board’s response was to immediately form a Special Committee of three independent directors, chaired by Eric Sprunk (the former Nike COO who’d joined Nordstrom’s board in 2021). The committee hired Sidley Austin as legal counsel and Centerview as financial advisor, joining Morgan Stanley, who continued advising the committee. The family, for their part, hired Moelis as their financial advisor.

The governance was critical. This wasn’t the family making a hostile run at the company; this was a board-sanctioned process with the family as the logical buyer-group nucleus, subject to arm’s-length negotiations with an independent Special Committee. The structure would prove essential for defending the deal’s fairness later.

Between February and May 2024, the family and their advisors at Moelis began the delicate dance of assembling a buyer consortium. They circled back to the parties who’d expressed interest earlier, but one by one, the sponsors fell away.

Strategic C’s antitrust concerns eliminated them. Strategic B, Sponsor A, and a new entrant (Sponsor H) all performed diligence and discussed economics, but none would commit as equity financing sources.

Complicating the situation, on March 19, Reuters published a story that the family was seeking to take the Company private again, sending the stock up 12%.

One Bid

On March 22, Sponsor E submitted a non-binding indication of interest to acquire Nordstrom at $21.00-$22.00 per share in cash, together with a statement indicating their interest to explore a partnership with the key shareholders.

Also on that day, Sponsor A verbally (that’s right, not even in writing) that they were not interested in acquiring Nordstrom but that they may have an interest in a potential sale-lease back of its real estate assets.

Meanwhile, Sponsor C just dropped out.

The offer by Sponsor E would flounder quickly, however. By June, Erik and Pete determined that the sponsor's economic terms were unworkable.

The Great Attrition

By late spring 2024, the harsh reality set in: nobody wanted to buy Nordstrom. At least, not at a price that made sense.

The financial sponsors faced the perfect storm. Retail LBOs had become toxic following the 2017 bankruptcy of KKR-owned Toys “R” Us and the struggles of debt-laden Neiman Marcus (which would file for bankruptcy in 2020). The Senior Notes refinancing risk was a showstopper: no sponsor wanted to inherit a capital structure they’d immediately need to blow up. And the growth story just wasn’t there. Department stores were in terminal decline; you can’t LBO your way out of secular headwinds.

By late spring, the “broad auction” had effectively collapsed. The board’s strategic review, launched with such urgency in June 2023, had yielded exactly zero credible third-party bidders willing to pay a compelling price.

Which left exactly one option: the family (perhaps with the help of a sponsor) and Liverpool.

III. Liverpool’s Metamorphosis (March to August 2024)

The Family’s Own Search

Following the family’s entry into the process, two other strategics (“B” and “C”) and one new financial sponsor (“Sponsor H”) reached out about participating as potential financing sources.

During the following months, the Family, Liverpool, and the other interested parties held multiple discussions on how to cut a deal.

Liverpool’s Decision

The turning point came on August 2, 2024. After Strategic C formally withdrew, citing anti-trust concerns, Erik and Pete Nordstrom approached Liverpool with a straightforward proposition: forget the sponsors, forget the strategic partners, let’s do this ourselves. Liverpool as the sole equity financing partner, alongside the Nordstrom family.

Liverpool’s representatives indicated they were “open to the possibility of exploring a potential transaction, subject to further discussion around the post-closing governance and capital structure to analyze whether there was long-term alignment” between Liverpool and the family.

This was no small commitment. Liverpool would need to pony up billions in equity, become a 49.9% owner, and essentially bet its balance sheet on a struggling American department store chain during an industry apocalypse. But the families—both proud retail dynasties with multi-generational legacies and shared operating philosophies—saw strategic logic in partnership.

Part of the challenge in structuring the deal stemmed from the fact that the family’s c. 33% rollover equity would give them a minority position in the private company. Neither wanted this: the family for governance and symbolic reasons, and Liverpool not wanting to consolidate Nordstrom’s financials into its own.

Over the next month, the contours emerged: a 50.1% / 49.9% ownership split between the Nordstrom family and Liverpool. The family would roll their existing equity. Liverpool would provide fresh equity capital and loan capital to the family to help fund their portion to keep them in a majority position. Both parties would share in incremental debt financing.

On September 3, after the Nordstrom Board approved formation of the “Bid Group,” the consortium submitted its opening proposal: $23.00 per share in cash, just one dollar over the bid received in March from Sponsor E. The letter was explicit about structure: the family and Liverpool would own the company post-closing in their roughly 50/50 split, but equally explicit about its non-binding nature.

The marathon to $24.25 had officially begun.

IV. The Negotiating Marathon (September - December 2024)

$23 to $24.25: A Three-Month Poker Game

The September 3 proposal valued Nordstrom at approximately $3.8 billion in equity value, implying a 35% premium to the “unaffected” share price of $17.06 from March 18, 2024 (the last trading day before the Reuters story). At 5.0x estimated 2024 EBITDA, it was within the range of precedent department store transactions, though admittedly those comparables (Belk, Neiman Marcus, Saks) dated back to 2013-2015, before the sector’s full deterioration.

The Special Committee wasn’t impressed.

On September 15, the committee met to review Morgan Stanley and Centerview’s updated valuation analysis. The bankers presented a critical insight: two recent developments had materially improved the transaction’s financing dynamics. First, Nordstrom was finalizing a new credit card program agreement with TD Bank that would generate an immediate $280 million payment. Second, the company’s Supplemental Executive Retirement Plan (SERP) could be amended to eliminate the requirement to fully fund it at closing, saving approximately $140 million in immediate cash outflow.

These weren’t fictional windfalls—the TD payment represented compensation for future services, and the SERP amendment merely deferred (not eliminated) benefit payments. But they reduced the external financing required for the transaction, potentially enabling the Bid Group to pay more while maintaining the same capital structure. As one committee member likely observed: “If they need less cash to close, they can afford a higher price.”

On September 19, the Special Committee fired back with $27.00 per share—a 17% increase over the Bid Group’s opening bid. The message was clear: we’ve done the math, we know you can pay more.

The October Price Discovery

Over six weeks, the parties exchanged five proposals and counterproposals, each iteration narrowing the gap:

• September 29: Bid Group counters at $23.75 (+3.3% from opening)

• October 3: Special Committee at $25.75 (-4.6% from their ask)

• October 9: Bid Group at $24.00 (+1.1%)

• October 15: Special Committee at $25.00 (-2.9%)

• October 17: Bid Group submits “best and final” at $24.25 (+1.0%)

But price was only half the battle. Beneath each number lay increasingly complex negotiations over deal certainty, financing commitments, and termination rights.

The October 9 proposal revealed the Bid Group’s financing constraints. Their equity commitments and debt financing wouldn’t fully backstop the merger consideration—they needed $620 million of Nordstrom’s cash on hand to complete the transaction. If Nordstrom had less cash than expected at closing, or if the full debt financing wasn’t available, the Bid Group couldn’t be forced to close. They’d simply pay a reverse termination fee and walk away.

This was unacceptable to the Special Committee. The independent directors wanted committed capital that would guarantee closing, not a highly conditional offer that shifted execution risk to shareholders. The October 15 counterproposal demanded that “Liverpool’s equity commitment, together with the amount proposed to be drawn under the debt commitment, would be sufficient to fund the merger consideration and Nordstrom transaction expenses without any use of Nordstrom cash on hand.”

The Bid Group wouldn’t budge on full backstop but did improve price to $24.25 and increased the reverse termination fees: $100 million for a Below Investment Grade Rating Event on the Senior Notes, $170 million for material breach or failure to close when required.

The November Endgame

By mid-November, both sides were done. The Bid Group had labeled their October 17 proposal “best and final.” The Special Committee faced a classic negotiator’s dilemma: push for more and risk losing the deal entirely, or accept an offer that, while imperfect, represented meaningful value for shareholders.

On November 20, the Special Committee made their final play. Rather than counter on headline price, risking the Bid Group walking away from their “best and final” offer, they proposed a creative alternative: accept the $24.25 price but require Nordstrom to pay a $0.25 per share special dividend to shareholders at closing. Total value to shareholders: $24.50.

Sprunk called Erik and Pete Nordstrom to convey the proposal, along with one additional demand: a $300 million reverse termination fee for intentional breach, without requiring Nordstrom to prove damages. The Bid Group came back hours later with a compromise. They’d accept the special dividend structure, but with two conditions: (1) the dividend would be conditional upon closing and adequate cash levels at Nordstrom, and (2) the $300 million damage cap would apply, but Nordstrom would need to prove actual damages to recover anything beyond the standard reverse termination fees.

The Special Committee accepted. After sixteen formal board presentations since the beginning of the year, after hundreds of hours of advisor meetings, after a three-month price negotiation that moved the offer 5.4% from $23.00 to $24.25, the deal was struck. The $24.25 offer represented 5.5x 2024E EBITDA.

The Rating Agency Roulette

One final drama played out in December. The Bid Group requested permission to engage with credit rating agencies through a RES/RAS process (Rating Evaluation Service / Rating Assessment Service) to assess whether the transaction would trigger a downgrade of Nordstrom’s Senior Notes. This was the $2.4 billion question that had haunted the deal from the beginning.

The feedback was concerning: S&P indicated they would downgrade Nordstrom’s Senior Notes and Debentures. However, the agencies noted they would maintain current ratings “following additional discussions” if the Bid Group offered security or guarantees for the Senior Notes.

This created a last-minute scramble. Between December 17-21, the lawyers negotiated provisions allowing Nordstrom to commence an exchange offer and consent solicitation for the Senior Notes, or alternatively to grant security unilaterally. The deal documentation was amended to eliminate the Below Investment Grade Rating Event as a termination condition if sufficient Senior Notes tendered in the exchange offer.

On that Sunday, December 22, 2024, while most people were finishing their Christmas shopping, the Special Committee held its final meeting. Morgan Stanley and Centerview delivered their fairness opinions. The board voted unanimously to approve the transaction and recommend it to shareholders.

The next morning, Nordstrom announced the transaction.

V. Inside the Banker Books

As this is a take-private transaction, the disclosure requirements provide us with remarkable detail about the process and the advisors’ analysis, offering a rare window into how Wall Street valued a declining retailer in 2024. In this case, we even get some insights into how one of the buyers (Liverpool) valued the business.

Since Morgan Stanley and Centerview were working with the same set of projections, their figures are quite consistent, focusing on trading multiples and DCF analysis while dispensing with transaction multiples for their opinion. J.P. Morgan, meanwhile, used Liverpool’s slightly more conservative take on the Nordstrom projections.

You can find the full presentations here:

• Morgan Stanley and Centerview

• J.P. Morgan

For their work advising Nordstrom, Morgan Stanley and Centerview would each earn a fee of $28 million. J.P. Morgan would earn an advisory fee of $12 million from Liverpool and make up to another $7 million from their role in financing the deal.

Share

VI. Epilogue: The Times Are A-Changin’

The historical irony is inescapable. In March 2018, the Nordstrom board rejected the family’s $50 per share offer. Six and a half years later, they accepted $24.25, less than half the prior bid.

What changed? Everything and nothing. The family’s love for the business remained constant. But the sector had deteriorated beyond recognition, capital markets had shifted dramatically, and the universe of alternative buyers had evaporated. In 2018, rejecting $50 felt prudent with the stock trading at $52 and memories of the $82 all-time high still fresh. In 2024, accepting $24.25 felt prudent with department stores in terminal decline and no white knight on the horizon.

The process, which delivered zero credible competing bids, told the story. The family and Liverpool, collectively controlling 43% of the company, weren’t buying Nordstrom from public shareholders. They were buying out the pseudo-majority at a price that reflected harsh realities about the business and limited alternatives.

For the public shareholders, the choice was stark: accept 42% above where the stock traded before deal rumors leaked, or hold on for a standalone future that Wall Street had valued in the high teens. The majority-of-the-minority vote required for closing would reveal their answer.

Project Norse, the deal that had consumed Nordstrom’s board for two years, was finally done.

The Nordstrom family would return the company to private ownership, fifty-two years after the 1971 IPO. Whether they will succeed in private markets, where they struggled in public ones, remains to be seen.

The last two years have not been kind to the retail sector, with several large retailers, including Saks, Eddie Bauer, The Container Store, Joann Stores (again), and Claire’s (again), filing for bankruptcy protection since the transaction was announced.

Disruption has also created opportunities, however, with some buyers taking advantage of low valuations to make acquisitions, with Dick’s Sporting Goods buying Foot Locker, JD Sports acquiring Hibbett’s, and 3G Capital taking Skechers private.

If you’ve read this far, you’re a star!

While August felt heavy with big-ticket food and retail deals, September gave us a major corporate split, a toy craze IPO and a couple surprises.

TL;DR

• Kraft Heinz splits in two following Kellogg’s playbook, but will it work?

• MINISO banks on collectible toy craze with TOP TOY IPO.

• RaceTrac buys Potbelly for USD 566m, a rare c-store/QSR mash-up.

• Atlas Holdings puts Office Depot out of its misery for USD 1bn.

Share

Kraft Heinz to split into two companies, but will it create shareholder value?

Ten years after Warren Buffett and 3G Capital orchestrated their USD 46bn mega-merger, Kraft Heinz announced on Sept. 2 it was splitting into two separate public companies, reversing a union that never quite delivered on its promise.

The split, expected to close in H2 2026, will separate the business into “Global Taste Elevation Co.” (sauces, spreads, shelf-stable meals; think Heinz, Philadelphia, Kraft Mac & Cheese) and “North American Grocery Co.” (slower-growing categories like Oscar Mayer, Kraft Singles, Lunchables, Maxwell House). Thankfully, they will come up with better names than that before the spin-off is completed.

The math is straightforward: what started as USD 46bn combination has seen shares plunge almost 70% since the 2015 merger closed, with seven consecutive quarters of sales declines leading into the announcement. The company’s sprawl across 56 product categories made efficient capital allocation impossible and 3G Capital’s famed Zero-Based Budgeting left brands starved for innovation investment just as consumers fled toward healthier and more innovative options. Buffett himself admitted to CNBC he was “disappointed” with the plan but wouldn’t actively block the split. Berkshire Hathaway remains the largest shareholder with its 27.5% stake. The announcement of a spin-off usually boosts shares a few points but this one fell flat and shares even tumbled 7% following Buffett’s comments.

The strategic rationale for the split mirrors Kellogg’s 2023 playbook almost exactly: separate growth winners from legacy losers, give each focused management attention, and hope public markets reward the sum-of-parts with better multiples. Kellogg’s split spawned Kellanova (snapped up by Mars for USD 36bn at 16.4x EBITDA) and WK Kellogg (acquired by Ferrero for USD 3.1bn in July at 11x EBITDA), so there’s precedent for unlocking takeout value. But a separation would also carry an estimated USD 300m in “dis-synergies” and the risk that neither entity proves compelling as a standalone, particularly the grocery unit, where private label continues to chip away at branded CPG. A recent WSJ article noted that “household names such as General Mills and Kraft Heinz [are being] squeezed from both sides: they are losing budget-conscious shoppers to private labels on price, and more-affluent ones to challengers on quality.” In that article they highlight Kraft Heinz as having 47% of its sales from brands with volume declining 1.8% or more per year.

Shareholder value creation will hinge on the post spin valuations of the two companies. With KHC trading close to 10% below its pre-announcement share price as October 6, investor remain skeptical. For the split to succeed for shareholders, the “Taste Co” business would likely need to comfortably hit a double-digit EBITDA multiple to support a lower multiple assigned to the declining “Grocery Co”. Capital structure and dividend may also be one lever to attract different kinds of investors at the two post-spin companies.

Importantly, what the spin-off also does is separate the Kraft Heinz behemoth into two companies of more manageable sizes and sets them up for a potential strategic sale down the road. Grocery Co, in particular, could have a market capitalization of under USD 10bn and could be target for one of the midsized players to or someone trying to gain scale in North America, like Ferrero’s did with its acquisition of WK Kellogg. That will have to wait until H2 2028, however, when the tax-free status of the spin-off is safe.

MINISO banks on toy craze with TOP TOY IPO

If you have a tween girl in your household, you are most likely already familiar with MINISO, the Chinese retailer of all things cute at pocket-money prices whose mission is literally “Life is for Fun.” MINISO reported 7,905 - mostly franchised - stores as of Q2 2025, including 4,588 in Mainland China and 3,317 across Asia, the Americas, Europe and more. Listed in New York and Hong Kong MINISO has close to USD 3bn in sales, a 20% EBITDA margin, a USD 6.9bn market cap and trades at around 11x 2025E EBITDA. Not. Too. Shabby.

But wait, there’s more: the current global phenomenon is the fascination with collectible pop-culture toys, more specifically with Pop Mart’s “Labubu” dolls, spotted hanging from your daughter’s backpack or your partner’s LV handbag. So popular that South Park had to make an episode about them. Also listed on the HKEX, Pop Mart is expected to hit USD 4.6bn in sales in 2025 with an EBITDA margin of almost 50%. Its market cap has swelled to USD 45bn (!!) and trades at close to 19x 2025E EBITDA. No comment on whether that’s a BUY or sustainable.

MINISO also has a growing “pop toy” collectibles business under the TOP TOY brand. That business is accelerating, growing 73% in H1 2025 to just over USD 100m in sales for the period. The MINOSO board (with surely the encouragement of some bankers) must have looked at the valuation discrepancy with with Pop Mart and concluded that they needed some of that premium multiple. In August, MINISO disclosed that Temasek had made an investment in TOP TOY “with post-valuation of about HKD 10bn [USD 1.3bn]”.

Then on Sept. 26 MINOSO announced its plans to spin-off TOP TOY and pursue a separate listing on the Hong Kong Stock Exchange. Convinced of the opportunity, big names JPMorgan, UBS and CITIC will serve as joint sponsors for the IPO (you can read the preliminary prospectus here). TOP TOY will remain a MINISO subsidiary post-spinoff, but the listing will aim to highlight the brand’s standalone value, attract dedicated growth capital from investors eager for exposure to the pop-culture toy boom, and hopefully get a taste of that juicy Pop Mart multiple. By listing TOP TOY while maintaining what is likely to be a significant majority of the shares, MINISO hopes to boost its own share price.

Launched in late 2020 with just nine stores across five Chinese cities, TOP TOY has expanded to 293 locations as of June 2025, including international markets entered in Q4 2024. For MINISO, which went public on NYSE in 2020 and dual-listed in Hong Kong in 2022, this is about portfolio optimization and value maximization.

MINISO aims to build 40,000 global stores over the long term, but TOP TOY’s toy-collector demographic, higher price points and mall-based retail model differ meaningfully from MINISO’s everyday-value positioning. Separating them allows each brand to tell its own story to investors. Timing also matters: Hong Kong’s IPO market has rebounded in 2025, and toy/collectibles categories are hot. If TOP TOY can capture even a fraction of Pop Mart’s valuation magic, the spinoff will prove savvy.

Subscribe now

RaceTrac gobbles up Potbelly for USD 566m in rare c-store to QSR crossover

On Sept. 10, Chicago-born sandwich chain Potbelly announced it would be acquired by Atlanta-based convenience store operator RaceTrac for USD 17.12 per share (a 34% premium to the previous day’s close) in an all-cash tender offer with an equity value of USD 566 million. The deal values Potbelly at roughly 1.2x LTM sales and a juicy 19.9x LTM EBITDA. The transaction marks RaceTrac’s second major acquisition after its 2023 purchase of Gulf Oil, and is unusual in the c-store world as operators typically partner with QSRs rather than buying them outright.

For RaceTrac (800+ stores across 14 states), this is about filling the foodservice gap. While regional peers like Wawa, Sheetz, and QuikTrip have built reputations around made-to-order food, RaceTrac’s menu has remained more conventional. Potbelly’s 445-unit footprint and 40-year sandwich-making heritage instantly elevates RaceTrac’s food credentials and gives it a scalable brand to deploy across locations, particularly at RaceTrac’s growing travel centers. The strategic logic: c-stores have evolved from fuel-and-snacks to meal destinations, and premium foodservice drives higher margin trips. Potbelly, for its part, has been struggling to reach its 2,000-unit aspiration through company builds and franchising.

The risk, of course, is integration complexity. Convenience store culture prizes speed and operational simplicity; QSR demands consistency, labor management, and a food-first mentality. Running two very different retail models in parallel can strain capital and focus. Having an in-house QSR concept may also force them to place Potbelly locations where they may not be the best choice and discourage other than brands from working them.

What started out as a brand licensing discussion between the two companies in January turned into an initial buyout offer at USD 13.50 per share that ultimately ended 27% higher at USD 17.12 eight months later. Potbelly IPO’d in October 2013 at USD 14 a share and while the stock shot up to USD 30 on its first day of trading, it hadn’t seen USD 15 since July 2014.

Kudos to the Potbelly board for extracting such a premium multiple, especially given that the process was purely bilateral and not a competitive auction.

Atlas to take Office Depot private on the cheap

Another beleaguered retailer is put out of its misery as a public company as Atlas Holdings announced on Sept. 22 that it would acquire The ODP Corporation, parent of Office Depot and OfficeMax for USD 28 per share in cash, representing a 34% premium to the prior day’s close in a transaction valued at about USD 1bn. While the premium is reasonably standard, the multiple is only about 0.14x LTM Sales and 3.8x LTM EBITDA. This transaction marks yet another takeout of a struggling retailer at 4-6x EBITDA following on the recent footsteps of Nordstrom, Foot Locker, Hibbett Sports, Ceconomy and Big 5 Sporting Goods.

For ODP, this represents an exit after years of strategic drift and declining relevance. The company posted a 7.6% revenue drop in Q2 2025, driven by fewer retail stores (60 fewer vs. prior year) and lower consumer traffic both in-store and online. The retail division has been bleeding; the company’s real value now lies in its B2B operations—ODP Business Solutions (office supplies to businesses) and Veyer (a third-party logistics arm).

Atlas Holdings has deep experience in distribution, supply chain, and paper/packaging sectors; capabilities that map well to ODP’s infrastructure. CEO Gerry Smith framed it as providing “substantial value for shareholders” and enabling “the next phase of growth” with Atlas’s “operational expertise and resources.” Translation: the public markets had given up on ODP’s turnaround story, and Atlas saw an opportunity to buy assets at a distressed multiple and fix them away from quarterly earnings calls.

For context, ODP tried to explore strategic alternatives in 2022 including a potential spinoff of retail, but ultimately stayed as is. You may also recall that the FTC blocked Staples’ attempt to acquire ODP back in 2016. This deal finally closes that chapter. Whether Atlas can succeed where public ownership failed remains to be seen, but removing the constraints of public markets is step one.

Read up on other retail deals:

Subscribe now

Once again, the SEC filings provide an inside look at the evolution of the transaction and the price negotiations. In the Background of the Merger section of the proxy statement, we learn that DICK’S had offered $40 per share in the fall of 2024, 67% more than the $24 per share shareholders were now receiving.

So how did Foot Locker end up there?

Subscribe now

Rewind to August 2022

When Foot Locker announced in August 2022 that Mary Dillon, fresh off a celebrated run at Ulta, would take the reins as CEO, the market applauded, with the stock soaring 20% to $38 per share on the news. The appointment signaled a reset for a brand struggling with declining comps and waning relevance. Investors bought into Dillon’s “Lace-Up” plan, a turnaround strategy put forward in March 2023 meant to diversify away from Nike dependence, refresh stores, and reignite growth.

The plan did not get off to a good start: Foot Locker took cut their guidance just two months later when it released Q1 2023 results and the stock plummeted 27% to $30. The second quarter was worse, with the company cutting guidance further and pausing its dividend. The stock fell 28% that day to end at just under $17.

Less than a year after the start of Dillion’s tenure, that optimism had dissipated. Execution was proving harder and more expensive than expected, margins were compressing, and the board faced uncomfortable questions about whether the Foot Locker had the runway to fix itself as a standalone company.

The First Round: Playing Hard to Get

In early January 2024 Edward W. Stack, the Executive Chairman of DICK’S, contacted Dillon and requested a meeting. At that meeting a couple of days later, Stack, DICK’S CEO Lauren Hobart and then VP of Strategy and Corporate Development Michael Stack1 pitched the idea of a combination - cash or stock - that “would benefit from increased scale, DICK’S Sporting Goods’ interest in global expansion and that, in the event of a combination, DICK’S Sporting Goods envisioned operating the Foot Locker banner independently from DICK’S Sporting Goods’ other banners.”

Dillon reported back to the board, who determined that the company was making progress with the Lace-Up plan and that they should see that through and not pursue an acquisition discussion with DICK’S. Dillon relayed the news to Stack who nevertheless expressed his continued interest. In late February, Stack informed Dillon that they were preparing a formal letter regarding a combination.

On March 6, 2024, Foot Locker announced its Q4 2023 earnings results and its fiscal year 2024 outlook, which included a two year delay in the anticipated timing of achieving the Lace-Up Plan’s financial targets. The stock promptly fell 29% to $24.

DICK’S did send a letter to Foot Locker shortly thereafter, but with no details of an offer. In it, they graciously noted that they assumed that Foot Locker “would not be interested in engaging in discussions at such given given the market’s reaction to Foot Locker’s recent earnings announcement.” The letter nevertheless reiterated their openness to discussing an acquisition.

On June 7, Foot Locker received a letter from DICK’S proposing to acquire the company at a range of $31-34 per share, representing a rather standard premium of 20-31% to then share price of $25.88, subject to due diligence. The Foot Locker board was willing to proceed but was weary of providing full access to confidential information. It would take six weeks to agree to a confidentiality agreement and a four month standstill. During that period Stack told Dillon that DICK’S was willing make its proposal public.

On July 26, the Foot Locker team gave a management presentation to its DICK’S counterparts with bankers Evercore and Goldman Sachs present. They discussed the Lace-Up Plan, Foot Locker’s financial projections (on an aggregated basis) year 2028, and Foot Locker’s technology platform, real estate, and new format stores.

On September 5, DICK’S came back with a formal $37 per share proposal, a 35% premium to the then share price of $27.43. The Foot Locker board dismissed it as inadequate, insisting the company would only negotiate around $41 and preferably all in cash. For directors still invested in Dillon’s turnaround narrative, this counter was a way to project conviction and keep control of the process.

DICK’S pushed back. On September 27 it tabled what it called a “best and final” offer at $40 per share, subject to a 60 day due diligence period. Foot Locker agreed and, throughout October and early November, DICK’S army of advisors conducted an extensive review of Foot Locker, with a focus on the Lace-Up Plan.

Whatever DICK’S discovered during due diligence did not give them comfort. On November 15, Stack called Dillon to say that they were withdrawing their offer and walking away, noting that they had not been able to validate Foot Locker’s business plan and highlighted certain of the challenges and execution risks to the Lace-Up Plan that had been identified through diligence.

It is worth noting that Foot Locker’s share price had fallen 14% to to $23.60 since the initial September 5 offer with the $40 offer now representing a 69% premium.

Whether it was a true change of heart or a calculated move, Foot Locker’s hopes of a premium sale evaporated with that call.

Back to the Table, but at a Discount

By March 2025 conditions had worsened. Foot Locker’s stock had sagged further, execution remained in doubt and the new administration was spooking investors with talks of tariffs and a trade wars.

On March 5th, Foot Locker announced its Q4 2024 earnings results, issued its outlook for 2025 and stated that it expected ongoing pressure on margin recovery and another year of significant investment in pursuit of its transformative Lace-Up Plan. DICK’S was surely watching and the outlook for 2025 was meaningfully lower than the financial information shared with the due diligence review in October 2024.

Into this backdrop DICK’S reappeared on March 14th with a blunt new anchor: $24 per share, all cash. This new offer was a stark 40% lower than the $37 per share they had offered just a few months back, but a 53% premium to Foot Locker’s then $15.68 stock price.

For the board this was a moment of reckoning. Ignoring the bid risked leaving the company in play without a partner, while entertaining it meant validating that Dillon’s turnaround plan had not created value. The leverage that once justified $41 was gone.

Stack also turned up the pressure, reiterating that it was prepared to make its offer public if Foot Locker didn’t engage and later dropping that DICK’S had acquired 4.5% (just under the disclosure threshold) of Foot Locker’s outstanding shares in the open market.

The April Dance: Price vs. Structure

On April 9, Foot Locker countered at $27, but with a twist. It demanded an uncapped stock election. The board wanted shareholders to be able to take DICK’S equity without restriction, a way of salvaging upside if DICK’S stock appreciated post-close.

DICK’S countered a week later at $25.50 per share, but capped stock elections at 50%. For DICK’S this was about controlling dilution. For Foot Locker the cap gutted one of the few levers left to add value. The board pushed back, resolving to accept the $25.50 price if DICK’S raised the cap to 80%.

By late April the contours of a deal were forming: $25.50 with an 80 percent cap, a fixed stock ratio, and a reverse termination fee to protect Foot Locker against regulatory failure. The structure mattered as much as the headline price, evidence that the board was shifting from maximizing nominal value to maximizing certainty.

Tariffs, Weak Earnings, and a Reset

Just as the deal seemed close, it faltered. On May 6, after a soft first-quarter outlook, DICK’S cut its proposal to $22. The reduction, though steep, reflected the reality that Foot Locker’s fundamentals were not improving.

The board faced a near-impossible choice. Accepting $22 risked enraging shareholders who still remembered the $40 discussion less than a year earlier. Rejecting it risked ending up with nothing.

Foot Locker countered on May 10 at $24, with no cap on stock elections and lighter termination-fee obligations. The figure was at least symbolically higher than $22, and the uncapped election offered holders meaningful optionality.

The Final Agreement

On May 11, DICK’S agreed. The definitive merger agreement, signed May 15, gave Foot Locker holders a true choice: $24 in cash or 0.1168 shares of DICK’S stock, with no aggregate cap. The board also secured a reverse termination fee of $96 million, while trimming its own termination obligations to $56 million.

It was a defensible outcome given the circumstances. The uncapped election allowed holders to self-select into DICK’S stock. A path that began with a $40 headline had ended 40 percent lower.

Lessons in Negotiating Leverage

The evolution of this process offers several lessons.

Anchors matter. By countering at $41 and signaling confidence in Dillon’s turnaround, Foot Locker initially kept the conversation at a high watermark. Once diligence discredited that narrative, the anchor was lost and DICK’S reset the bar.

Being “in play” narrows options. Once DICK’S walked in November, Foot Locker had no clear alternative buyer. The board considered but rejected reaching out to other strategics, citing leak risk and low probability of success. When DICK’S returned in March, it was effectively the only bidder.

Structure can substitute for price. By April, Foot Locker’s best levers were not headline dollars but deal mechanics. Securing an uncapped election and a robust reverse termination fee likely created more value for holders than pushing for another 50 cents per share. Case in point: while DICK’S share price initially fell 15% on the announcement, it has since recovered nicely such that taking the share deal would be worth $26.162 per Foot Locker share, 9% more than the all-cash offer.

Performance and Markets drive outcomes. Continued earnings weakness and tariff shocks gave DICK’S the confidence to retrade to $24 and then to $22. No amount of board resolve could prevent market conditions from shifting the negotiating equilibrium.

Conviction brings strength. DICK’S willingness to take their offer public and backing that up by purchasing a significant stake in Foot Locker in the open market added significant pressure to the board by signaling their determination and boxing out potential interlopers with the equity stake.

Epilogue

Foot Locker’s journey from $40 to $24 illustrates the brutal dynamics of deal negotiations when performance falters and markets turn. Boards can project conviction, demand premiums, and cling to turnaround narratives, but leverage is ultimately determined by what a buyer sees in diligence and what the market is willing to believe. Widely held companies like Foot Locker with no significant insider shareholder blocks or take-over defense mechanisms are also always at the mercy of an unwanted offer by a determined buyer. In those situations performance is the best defense.

Compounding Foot Locker’s woes was Nike’s own challenges. Mentioned no less than fifteen times in the merger timeline as the “important Foot Locker brand partner,” Nike, whose products represented about 70% of Foot Locker’s sales, was a weakened brand partner during this period, facing sluggish growth, channel-strategy reversals, and loss of product momentum. For Foot Locker’s board, this weakness meant that even if the Lace-Up Plan executed flawlessly, the company was tethered to a brand whose own performance was under pressure. This dynamic undercut Foot Locker’s negotiating leverage with DICK’S, since any bullish projections tied to Nike were likely heavily discounted.

Dillon’s appointment in 2022 had raised expectations of a strategic reset for Foot Locker. By 2025, however, those expectations had dissolved into the reality of a sale on the buyer’s terms. The final deal structure gave shareholders real optionality, but the path there was a stark reminder that in M&A, leverage is fleeting, timing unforgiving, and the line between negotiating from strength and negotiating from necessity thinner than boards often realize.

TL;DR

• Ferrero acquires WK Kellogg for $3.1bn, ending the brand’s journey as an independent company

• Mars receives US FTC approval to move forward with its acquisition of Kellanova while EU opens in-depth investigation.

• Unilever continues acquisition spree with Dr Squatch for estimated $1.5 bn Reckitt sells majority stake in Essential Home business but deal terms disappoint

• Big 5 Sporting Goods sold for just 0.14× sales.

• La Perla saved! (again). Will this prince be the real deal or another frog?

  Share

Ferrero’s acquisition of WK Kellogg ends the brand’s journey as an independent company

In what surely ruined someone’s Fourth of July weekend, on July 10th Ferrero announced the acquisition of WK Kellogg, the North American cereal business spun-off from Kellanova (formerly Kellogg Company), for $23.00 per share and an enterprise value of $3.1 billion (including unfunded pension liabilities). The transaction multiple equates to about 10-11x EBITDA, a far cry from the 16x achieved by Kellanova, but still quite good for a declining category and a barely double digit EBITDA margin.

With the pending (cross-your-fingers) sale of Kellanova to Mars, this marks the end of Kellogg’s journey as an independent company since its incorporation in 1922 and IPO in 1959. Another interesting parallel is that both are being acquired by privately held family-owned businesses.

Kudos to Goldman Sachs for advising on both this transaction ($20m fee) and on Kellanova’s sale to Mars ($93m fee). In banking, long-term relationships pay off. Same for Kirkland & Ellis.

Mars/Kellanova deal receives US antitrust approval while EU opens in-depth investigation

Late on June 25th the U.S. Federal Trade Commission cleared the acquisition of Kellanova by Mars. That same day, however, the EU opened an in-depth investigation into the transaction. The Commission normally has 90 days to take a decision but “paused the clock” in late July pending satisfactory receipt of data requested from the companies.

You can read my three-part deep dive on the transaction here:

Unilever adds to personal care portfolio with Dr Squatch

Price / multiples: ≈ $1.5 bn (≈ 3.8× FY-24 sales of ~$400 m; ≈ 16.7× EBITDA of ~$90 m).

Thesis in a bar of soap: Unilever keeps tilting toward premium, digital-first “challenger” brands—think Dollar Shave Club redux, but with profitable growth baked in. Expect global roll-outs via existing Axe/Dove infrastructure and a halo for the Personal Care BU’s margin mix. Press Release: unilever.com

Reckitt sells majority stake in Essential Home business but deal terms disappoint

While Unilever was buying, Reckitt sold a majority stake in its Essential Home household products business to private equity firm Advent International as part of its turnaround plan to reshape the company.

The terms of the deal hint at a challenging sale process: (i) a full sale was not achieved with Reckitt retaining a 30% stake; (ii) the enterprise value of “up to” $4.8bn includes $1.3bn of contingent deferred and deferred consideration; and (iii) even then, the valuation implies just 7.7x LTM Operating Profit (and thus even less on an EBITDA basis). Excluding $1.0bn of performance-based contingent payments, the multiple drops to just 5.8x LTM Operating Profit.

The headline valuation came in short of the USD 5.4 bn mentioned in press reports with Reckitt still retaining a large exposure and risks to the business given its significant remaining stake and the contingent payments.

Big 5 Sporting Goods sold for just 0.14x Sales

Price / multiples: $113m EV → ~0.14× FY24 Sales of $796m.
Thesis: Specialty-golf retailer Worldwide Golf teams up with investment firm Capitol Hill Group to rehab a tired, West-Coast big-box chain. Low multiple reflects weak comps and inventory overhang, but private ownership can right-size store count and accelerate e-comm without quarterly scrutiny.

Adding insult to injury: while the deal is being done at $1.45 per share, Moelis’ fairness opinion valuation range was “negative $4.04 to negative $3.69 per share.”

press release: globenewswire.com

La Perla is saved! (yet again)

A small but symbolic deal: Former Expedia CEO Peter Kern brings deep pockets and patient capital to a storied but cash-starved luxury lingerie label. Keeping production and jobs in Bologna helped beat out other bidders by placating unions and an Italian government intent on preserving the “Made In Italy” tagline.

The iconic Italian brand has seen a succession of owners over the past twenty years. Founded by Ada Masotti in 1954, US private equity firm JH Partners acquired the brand and its factories from the family in 2007. The business didn’t make it through the post-GFC recession and was put for auction in 2013, where Fastweb owner Silvio Scaglia acquired the company for €69 million. At the time, Scaglia said that the investment would protect 800 employees and that they would pump a further €110 million into relaunching the brand.

Despite huge investments, in 2017 Scaglia then sold La Perla to the financier Lars Windhorst, who despite promises and never relaunched the company. By 2023, the workforce was down to 350 and suing unpaid wages. Bloomberg Story here.

While you’re at it, catch up on other articles:

While many of us were winding down our year, or furiously shopping on this last weekend before Christmas in 2024, the junior bankers at Morgan Stanley and Centerview Partners were hard at work preparing what they were hoping was their last deck for the board of directors of Nordstrom, the Seattle-based department store retailer.

If ‘deal fatigue’ needed a case study, Project Norse, as this mandate was coded, would be worthy of it. The board had been dealing with activism defense and reviewing strategic alternatives for the better part of two years. This board meeting, scheduled on Sunday December 22nd, was to be the sixteenth formal board update by financial advisors Morgan Stanley and Centerview since the beginning of the year.

The next morning, however, Nordstrom announced a definitive agreement with members of the Nordstrom Family and El Puerto de Liverpool, S.A.B. de C.V. (“Liverpool”), the Mexican department store group that already owned 9.9% of Nordstrom’s shares. The consortium was acquiring all of the outstanding shares they did not already own for $24.25 per share in a $6.3 billion deal worth ~5.5x 2024E EBITDA1. Following the closing of the transaction, Nordstrom would once again be a private company after more than fifty years in the public markets. The Nordstrom Family would own 50.1% and Liverpool 49.9%.

This was the family’s second go private attempt; the board rejected the first attempt by the Nordstroms to take the Company private dating back to 2018 when the board turned down an offer of $50 per share.

Once again, the juicy bits are in the SEC Filings as this $6 billion “going private” transaction falls under Rule 13e-3 of the Exchange Act, there are significantly higher disclosure requirements.

This deal has it all: fairness opinions, poison pills, meme-stock lords, valuation details, a dozen presentations from the investment banks and even disclosures from litigation. These board room documents provide unique insights into the challenges and decisions facing the Company.

Over two installments, I will take an in-depth look at this complex transaction, examining its history, challenges, and deal terms.

Share

Flashback: a brief history of Nordstrom

From frontier shoes shop to national chain

The lore is that John W. Nordstrom arrived in New York in 1887 with five dollars and no English. A lucky stake in the Klondike gold rush yielded $13,000, seed money to open Wallin & Nordstrom, a 1,000-square-foot shoe with partner Carl. F. Wallin at Fourth & Pike in Seattle, Washington, in 1901. The formula was simple but radical for the era: offer every shoe size and width, maintain “open-stock” displays so customers handled merchandise freely, and treat returns as investments in goodwill.

John and Wallin eventually sold their shares to John’s sons Everett and Elmer by 1929. The company was dropped the Wallin name in 1930 to become just Nordstrom. John’s third son Lloyd joined the business in 1933. This would be the beginning of Nordstrom unique model of “management by committee.”

Over the next thirty years, Nordstrom expanded into women’s, men’s and children’s apparel and across state lines.

Management by committee.

By 1968, the company had reached about $50 million in sales when the third generation of Nordstroms stepped in, with Everett’s son Bruce, Elmer’s sons James and John, and Lloyd’s son-in-law Jack McMillan and family friend Bob Sender taking over from Everett, Elmer and Lloyd.

Under the leadership of what was an unorthodox leadership structure of four Co-Chairman, the following two and half decades would prove to be an astounding period of growth for the company. Between 1968 and 1995, the company grew sales at a remarkable 18% compounded annual growth rate, soaring from $50 million to an impressive $4 billion. This phenomenal streak transformed the retailer from a regional player to a national powerhouse, cementing its reputation as a leading department store chain.

In 1991, the four Nordstroms became Co-Chairmen. The fourth-generation Nordstroms were seen to be too young and inexperienced to lead the company’s rapid growth. They instead named four friends and managers as Co-Presidents, keeping with the tradition of leadership by committee.

In 1995 the four “Gen 3” Co-Chairmen retired to make the way for two of Co-Presidents, Ray Johnson and John Whitacre and, count them, six new Co-Presidents in Bill, Blake, Dan, Erik and Pete Nordstrom - all in their thirties at the time.

The four non-family Co-Presidents installed in 1991 had already been trimmed to two, and when Johnson retired in 1996 Whitacre was the last man standing. The board concluded that a lone CEO with deep store-ops experience would bring clearer accountability than the faltering committee model.

The more things change, they more they stay the same

In February 2000, Whitacre received board approval to eliminate the office of the Co-Presidency and to appoint presidents for each of Nordstrom's five business units. Appointed to those positions was only one Nordstrom, Blake, as President of Nordstrom Rack Group. The others were assigned various line jobs, including Dan as CEO of nascent Nordstrom.com2, Bill as EVP and East Coast General Manager, Erik as EVP and Northwest General Manager and Pete as director of full line store merchandising strategy.

general manager, while Pete is director of full line store merchandising strategy for

children’s apparel, cosmetics, junior apparel, lingerie, men’s apparel and women’s

active sportswear.

Only seven months later in September 2000, Whitacre was ousted as CEO as his attempt to rejuvenate assortment and attract younger customers alienate its customer core base without attracting enough new ones.

With hip-hop music and flashing lights, Nordstrom has been trying to get shoppers to trade tweed blazers for leather miniskirts. Ads have been urging customers, "Reinvent Yourself."

Many Nordstrom loyalists were put off by the stores' more visible -- and audible -- changes. Older customers didn't necessarily take well to throbbing strains of hip-hop or all that black leather draped around.

-Wall Street Journal, 8 September 2000

Bruce Nordstrom came out of retirement to assume the role of Chairman with his son Blake as sole President. The family was back in charge.

With Bruce and Blake at the helm, the family was quietly betting that the old Nordstrom formula - merchandising instinct backed by obsessive service - could still outperform the . Re-centralizing buying steadied the floor: from $5.7bn in sales in 2000, comps turned positive in 2002, sales accelerated through the mid-decade, weathered the GFC before roaring back to hit $14.4bn in sales in 2015. The brothers rolled out Racks at a ferocious clip and also invested heavily into their e-commerce platform. The stock hit an all time of $82 in March of 2015 and brothers Pete and Erik joined Blake as Co-Presidents that same year.

By 2017, however, the mood had shifted as new channels were eating into department stores’ share of the US apparel market: Amazon was plowing its way through retail, brands were leaning into their own direct-to-consumer channels and fast-fashion was hot. Growth was stalling and the combination of lower store footfall and the new retail landscape (with free shipping, e-commerce capabilities, and price-matching offers) was proving to be margin dilutive.

The 2017 take-private overture

The filing that woke everyone up

On June 7th, 2017, barely three weeks after a disappointing earnings report that sent the share price down near 18%, members of the Nordstrom family representing 31% of the outstanding shares of the company disclosed through a Form 13-D regulatory filing that, “in light of the changing dynamics in the retail environment, [the Nordstrom Family] determined to form a group (the ‘Group’) to explore the possibility of pursuing a ‘going private transaction’ involving the acquisition by the Group of 100% of the outstanding shares” of the company.

In that same filing, the Nordstroms also made it clear that, should the board want to expand the process to other potential bidders, they were neither interested nor supportive of a sale of the company to a third party:

As heirs to the [Company’s] co-founder, and following four generations of family leadership of the business that bears their name, the [Nordstrom Family], in their capacities as shareholders of the [Company], have no interest in a sale of their shares of Common Stock of the [Company] to a third party, or voting for an alternative transaction.

- Form 13-D, June 7 2017

No offer was made and the filing specifically noted that “At this time, the [Nordstrom Family] have not secured commitments for any such debt or equity financing and there can be no assurance that [they] will be able to obtain the funds necessary to consummate one or more of the transactions described.”

Nevertheless, the family engaged Moelis while the board formed a special committee hired and Centerview as its financial advisor. The stock promptly popped 17%.

Why make such an announcement without a definite proposal?

Due to one of the peculiarities of Washington State law - the RCW 23B.19 “moratorium” statute - the Nordstrom family had little choice but to lay their cards on the table. Owning well over the 10 % threshold that triggers the statute, the family knew any quiet, behind-the-scenes buy-out effort would be blocked for five years unless an independent committee of the board first sanctioned their buyer group and the deal later passed a “majority-of-the-minority” vote. By publicly declaring their intent, they compelled the board to form that committee, satisfied securities-law disclosure, essentially invited lenders and potential equity partners into a fully authorized process, and, while doing so signaled to third parties that their ultimate consent to a transaction was non-negotiable.

Dialing for LBO dollars

The next several months would have the Nordstrom and their advisor Moelis canvassing equity and debt financing providers. At the time, a transaction at $50 per share implied an equity and enterprise values of about $8.4 billion and $10.0 billion, respectively. Private equity firm Leonard Green showed interest to partner on the deal but financing the transaction was the challenge. Retail LBOs were out of favor in the leveraged capital markets, especially with the bankruptcy of KKR owned Toys R Us in September 2017 and the challenges of debt ladened fellow luxury department store company Neiman Marcus3.

By March 2018, however, it appeared that Nordstroms and Leonard Green had secured the financing for a deal at $50 per share. With Nordstrom’s share price trading around $52 at the time and hopeful memories of the $82 all-time-high in 2015, the board rejected the offer. After the family declined to raise its bid, the board terminated all discussions, noting in the press release that the parties “could not reach agreement on an acceptable price.” Nearly a year’s work had just gone down the drain.

The next few years would continue to be challenging for the company and the family. In January 2019, Co-President Blake Nordstrom passed away unexpectedly. This was quickly followed by the shock of the pandemic the next year, with sales falling 30% to $11 billion. Then, in late 2021, Bloomberg revealed that Nordstrom had hired AlixPartners to study a spin-off of the off-price Rack division, the same break-up logic activists were pressing at Macy’s and Kohl’s at the time. While the company framed the review as internal and no activist had publicly raised its hear, bankers claimed it was in direct response to prospective shareholder pressure for value-unlock options.

Enter Liverpool, the Mexican White Knight?

We may never know the full story, but the official one is that Liverpool CEO Graciano Guichard González met Blake, Erik and Pete Nordstrom at an industry conference in May 2017 where they swapped merchandising war stories. The families shared legacies as a family-founded and family run businesses together with a gospel of attentive service and credit-card analytics. Liverpool’s cash rich balance sheet was also the envy of battered U.S. peers. The two sides remained in contact and met at other conferences in 2018 and 2019.

In January 2022, according to the proxy statement, Liverpool expressed their interest to Erik and Peter in using excess cash on their balance sheet to make a passive minority equity investment with no intention of exerting any control or influence over Nordstrom.

In late August 2022 - with the Nordstrom share price dipping under $20 - Liverpool quietly began buying Nordstrom stock on the open market, disclosing a 9.9% passive stake on 15 September 2022. Alarmed at a potential creeping takeover, Nordstrom’s board installed a 10 percent shareholders rights plan, a soft poison pill that nevertheless signaled welcome if Liverpool played by the rules.

Far from repelling suitors, the move cemented a friendship. Liverpool executives toured with Nordstrom merchants, brainstorming cross-border private-label sourcing.

The end result was also that now more than 40% of Nordstrom’s shares were in the safe hands.

Reality Check

While Nordstrom was reasonably safe from a hostile takeover or shareholder activists, it did not stop Ryan Cohen, the meme stock king and billionaire co-founder of pet retailer Chewy, from giving it a shot. In February 2023, the WSJ reported that Cohen was amassing a sizable stake in Nordstrom and was agitating for board changes and cost cuts amid sluggish sales. Even though Cohen never filed a proxy slate and the campaign fizzled by mid-2023, it was a catalyst for the board to take action.

At a meeting in June 2023, the board discussed initiating a review of strategic alternatives that might be available to enhance shareholder value.

During that meeting invited guest Morgan Stanley likely showed some version of the two slides below. The headline was bleak: department stores had lost $26 billion of sales - half their business - in the last fifteen years.

What to do now?

Want more? Continue to Part II

You can now read Part II, where Nordstrom’s review of strategic alternatives takes them, the challenge of finding value creation solutions, and how the Nordstrom Family and Liverpool eventually secured the approval of the board. We will also glean precious insights from the presentations of the advisors on the transaction.

Link below:

You can also read about the largest packaged foods deal in 10 years.

1

Extract from board update dated 19 December 2024:

2

Throwback: Nordstrom website from 2000. Couldn’t resist including.

Last week, Huda Beauty bought back TSG Consumer’s minority stake in the company. The transaction was funded by the sale Huda Beauty’s KAYALI fragrance business to General Atlantic and co-founder Mona Kattan, transforming Huda Beauty and KAYALI into two separate companies.

General Atlantic’s press release announcing the KAYALI investment notes that Huda Beauty would “redeem” TSG’s shares, providing a clue as to what transpired.

Share

A $1.2bn valuation will come with strings attached

TSG acquired its minority stake in Huda Beauty in December 2017 at an estimated $1.2bn valuation, just four years after Huda Beauty’s launch. Founded in Dubai by Iraqi-American beauty influencer Huda Kattan, it was a rare regional business getting global attention and Huda was one of the first beauty bloggers to raise significant private equity capital.

While this is a guess, the capital likely took the form of preferred equity with three key features common for growth equity minority investment:

1. a preferred dividend;

2. a liquidation preference; and

3. a redemption right.

TSG’s seven-year hold suggests that the investment didn’t go according to plan

Revenue data for Huda Beauty is scarce, yet industry estimates show sales grew from about $200m in 2017 to $300-400m in 2018 and roughly $400m in 2019. Pandemic effects make 2020 opaque, with sources ranging from $250m to above $500m, depending on whether figures reflect wholesale or retail sell-through. Demand for color cosmetics then cooled, and most reports point to a pull-back to about $250m in 2021. Momentum returned in 2022, and one source now pegs the 2024 run-rate near $450m.

Growing from $200m to $450m over seven years implies a 12% revenue CAGR - solid but probably below the original business plan. Another tell-tale sign of internal challenges with an investment is leadership churn. After TSG invested, the company hired industry veteran Nathalie Kristo as President of North America in 2018, elevating her to CEO in September 2020 while Kattan became Chair. Kristo stepped down only seven months later.

Meanwhile, the preferred dividend keeps compounding1, increasing the value of the preferred equity and eating into Huda’s share of the company.

The ability to exit an investment is one of the important parts of a private equity investment thesis, perhaps only second to delivery strong returns. Because TSG lacked control, a redemption right can play a critical role in exerting pressure for an exit. A redemption right allows the preferred shareholders (in this case, TSG) to require the company to repurchase their shares at their then accreted value including the preferred return, offering a path for liquidity if an exit is delayed or uncertain. Not complying would trigger a default and force a full sale.

The threat of redemption, together with the accrued dividends and liquidation likely pushed both side toward the twin transaction.

Denouement

Known for sharing her successes and challenges with her followers, Huda posted a video on her youtube channel titled “I CAN'T BELIEVE WE JUST BOUGHT HUDA BEAUTY BACK!” The video kicks off with audio voice-overs: “As of today we are one of the only completely privately held companies” (in the beauty industry), “I felt like a fish in a shark tank,” and “I literally don’t have to answer to anyone,” followed by a graphic proclaiming “The Emancipation of Huda Beauty,” a telling choice of words. In the six minute testimonial, she recounts her founder journey, her experience bringing in investors (without naming TSG), and ultimately shares that she was not ready to sell her business outright to create an exit for TSG. While it’s clear that things didn’t work out, she is gracious with her former investors throughout the video.

Huda could have simply swapped TSG out with another investor, but it’s clear that reasserting full control of her company was critical to her.

Huda and Mona now each have their company

The end result is that Huda has regained sole ownership and decision making at Huda Beauty, but will need to self-fund her growth plans from hereon.

Meanwhile, her sister Mona will continue as CEO of KAYALI, but with General Atlantic as co-owner. There is no mention as to who has control but we can assume that the Kattans and General Atlantic will have learned from the TSG experience.

We don’t know how much money TSG made or lost on its investment in Huda Beauty. For what it’s worth, however, TSG has scrubbed Huda Beauty from its website and even pulled the original 2017 press release, as if the deal had never happened.

TL;DR

• 3G Capital buys Skechers for $9.4bn, opportunistic or sweetheart deal?

• DICK’S to acquire Foot Locker for $2.5bn, raising questions about strategy and timing

• e.l.f. Beauty acquires Hailey Bieber’s rhode for $1bn, reigniting its stock with a $1 price hike and Gen-Z glow

• Church & Dwight snaps up Touchland for up to $880m, keeping its niche M&A machine running

• ConAgra sells Chef Boyardee for $600m, marking the end of an era

Share

3G Capital acquires Skechers for $9.4bn and offers a taste of PE to shareholders

https://investors.skechers.com/press-releases/detail/665/skechers-agrees-to-be-acquired-by-3g-capital

On May 5th, Skechers (“SKX”) surprised many by agreeing to be acquired by 3G Capital in a $9.4 bn transaction. In one of the first post-tariff consumer transactions, 3G is buying Skechers for $63/share; a 30% premium to the 15-day average, but 17% below the Jan 2025 highs. Valuation looks like ~8.7x LTM EBITDA but ~10x 2025 EBITDA after factoring in the impact of tariffs.

The deal was quietly done, apparently on a bilateral basis without a sales process. Must have been an interesting negotiation amidst all the tariff drama. In an interesting twist, 3G is offering shareholders the opportunity to roll about 10% of the consideration into the private company (but with zero rights).

Since SKX Founder and CEO Robert Greenberg and his family control ~60% of the voting power and have already consented to the deal, 3G is trying to avoid a shareholder vote. Some shareholders have cried foul, however, claiming that this is more akin to a “take private” transaction subject to stricter rules and enhanced disclosures under SEC Rule 13e-3.

Notable points:

• Slightly over 1x Sales to buy the #3 global footwear brand

• $63 per share in cash or $57 in cash (~90%) and 1 unit of the private company.

• 30% premium to 15-day VWAP but 17% below the Jan 2025 high.

• Fine print: 3G is keeping the arbs out by mandating that only shareholders on record prior to the deal’s announcement are eligible for the rollover shares.

If 3G’s restaurant playbook is to be replicated, Skechers’ international distributors and franchise partners can expect to see aggressive growth and expansion expectations from the new owners.

Bold or Bloated: DICK’S acquires Foot Locker for $2.5bn

https://investors.dicks.com/news/news-details/2025/DICKS-Sporting-Goods-to-Acquire-Foot-Locker-to-Create-a-Global-Leader-in-the-Sports-Retail-Industry/default.aspx

On the morning of May 15, DICK’S Sporting Goods (“DKS”) announced the acquisition of Footlocker (“FL”) in a $2.5bn deal. While the 86% premium is eye-popping, that brings shareholders back to the share price from just six months ago.

Notable points:

• Shareholders to get $24 per share in cash or stock.

• Bargain basement multiple of 0.3x sales and 6x 2024 EBITDA.

• Foot Locker kept as standalone banner; cross-inventory planned.

• DKS + FL combo to strengthen position with brand partners.

• $100-125m synergies primarily from supply chain/buying

While DKS management sees FL as an “easy fix,” the acquisition does bring up some serious questions:

• Why complicate a good story? Is DKS basically buying the market share it could have gained anyway?

• Why pick up more mall exposure? FL has 58% of its North America stores in malls, raising concerns about outdated retail formats.

• Why add a potentially unwieldy international portfolio? FL operates over 700 stores in 20 countries and has another 200+ partner stores globally while DKS is still US only.

• Peak sneaker cycle?

Market reaction: -15% for DKS. Message received.

e.l.f. Beauty raises prices by $1 and buys Hailey Bieber’s rhode for $1 bn

URL: https://investor.elfbeauty.com/stock-and-financial/press-releases/landing-news/2025/05-28-2025-210536607

e.l.f. Beauty was having a tough 2025 amidst the ongoing tariff drama, with its stock price hitting a low of $49.95 in mid-April which down 77% from its 2024 peak of $218 per share. But May turned out to be its best month ever, with the stock finishing the month up 82% to $112.

How did this all happen? First, with 75% of its products made in China, the stock has been sensitive to the ongoing trade war and benefited from the rally following the ninety pause on the highest China tariffs.

Then, on May 23rd, the company announced a price increase in what could be smoothest Gen-Z play ever seen. In an Instagram post (ofc) featuring emojis, short-hand, googly-eyed products and the words “inflation” and “tariffs”, the drugstore beauty brand announced that prices would go up by $1 starting August.

According to JPMorgan, “the $1 price increase neutralizes the EPS impact of tariffs, assuming ~50% elasticity.”

Finally, on May 28th, in conjunction with its Q4 2025 (FYE March) earnings release, e.l.f. announced the acquisition of rhode, the DTC skincare brand founded by Hailey Bieber (née Baldwin).

The deal terms are as follows:

• $800M at closing or 3.8x LTM sales of $212m (ex-earn-out)

• Further broken out into $600m cash and $200m in stock

• Plus earn-outs worth up to $200m: (i) up to $100m based on annual revenue projections over a three-year period from closing, and (ii) up to another additional $100m upon “overachievement by the rhode business of such revenue projections by a specified amount over the same period”.

• Hailey Bieber to stay on as CCO along with with her 55m followers

The market loved the deal (and the earnings) as the stock surged 28%, its largest one day gain since its IPO in 2016, and despite neither offering any more details on the acquisition nor any financial outlook.

Since the stock portion of the deal was negotiated at a fixed price of $77.1685 per share (~2.6 million shares), rather than at a fixed exchange ratio, the sellers received a nice bonus on day one: with e.l.f. stock now at $112.49, that’s worth an extra $92m. Put another way, you could also say that e.l.f paid $892m (4.2x sales), not $800m.

But it’s unlike e.l.f. is complaining: they nabbed one of the hottest Gen-Z skincare brands and restored their status as a hot stock with a sales multiple in excess of 4x.

Church & Dwight buys Touchland for up to $880m or 6.8x Sales

URL: https://investor.churchdwight.com/Investors/news/news-details/2025/Church--Dwight-to-Acquire-the-Touchland-Brand-for-700-million-Plus-Earn-out/default.aspx

Serial acquirer Church & Dwight (“CHD”) pays up for hand sanitizer darling.

• Fastest growing hand-sanitizer brand; #2 share in the U.S. hand.

• $700m to be paid at closing and up to another $180m based on 2025 sales targets.

• 5.4x Sales and 12.7x EBITDA, rising to 6.8x Sales and 16.0x including earn-out.

• Patent portfolio of scented formulations attractive for Arm & Hammer cross-licensing.

CHD is buying another “small brand, big TAM” platform. The multiple makes the price paid by e.l.f. for rhode deal look cheap, but Touchland’s repeat-purchase dynamics mirror those of Hero Cosmetics, maker of teen favorite Mighty Patch, which CHD acquired for $630m in 2022 and successfully integrated ahead of schedule last year.

Like the rhode deal, the sellers can earn up to 25% of the initial consideration from the earn-out although the shorter time frame (<1 year vs three years from closing) will have more visibility and less governance risk.

ConAgra sells Chef Boyardee to Brynwood Partners’ Hometown Food for $600m

URL: https://www.foodmanufacturing.com/capital-investment/news/22940067/conagra-to-sell-chef-boyardee-brand-for-600m

Key Points:

• Transaction value of $600m

• Brand sales of ~$450m in 2024

• Valuation of ~1.3x sales

• ConAgra to focus on frozen food and snacking categories

On May 1st, almost exactly 25 years after buying Chef Boyardee as part of its acquisition of International Home Foods in May 2000, ConAgra (“CAG”) announced the sale of the iconic canned pasta brand to a portfolio company of Brynwood Partners. With the sale, ConAgra will have largely completed its portfolio restructuring to focus on its “growth-oriented frozen and healthy-snacking businesses”.

The brand, like many of its peers in the canned soups and pastas aisle, has seen better days. Chef Boyardee had sales of approximately $450m in 2024 compared to an estimated $500m back in 2000 (per a Deutsche Bank research report I had to dig in the archives for). That’s a 50% decline on an inflation adjusted basis.

Brynwood’s Hometown bet: collect “nostalgic brands that offer a longstanding rich heritage” and reinvigorate them.

In this third and final piece, I focus on the financials, more specifically the valuation metrics and the contents of the fairness opinions of Kellanova’s two financial advisors, Goldman Sachs and Lazard Frères. We will look at their valuation methodologies, where they differed in their approach, and how they positioned the transaction for the board to make its final recommendation. We also find how much each gets paid.

Once again, the juicy bits are in the SEC filings. These documents provide a rare glimpse into the client materials of large investment banks and the parameters on which boards base their decisions. A pro-tip here is that merger-related proxy statements are an excellent resource for trading comparables, transaction comparables, and even discounted cash flow assumptions. Importantly, you have the benefit that the analysis has been most likely prepared “by hand” (i.e. not from a database) and scrutinized to a much higher degree than your average pitchbook. Granted, these are ultimately prepared by twenty-something analysts and their (sometimes) clueless MBA associates, but institutional knowledge at these firms tends to be strong and seasoned bankers can often sense when something is amiss. Judgment, analytical approach, and deal specifics may differ from one team to another, so results can vary across deals, even if the advisor is the same.

For this snacking deal, the bulk of the information is found in the proxy statement issued by Kellanova. There, we get to peek into the presentations that each of Goldman and Lazard made to the board of Kellanova on August 13, 2024, the day before the merger was announced. By then, the deal teams had been having sleepless nights for months and this was the culmination of their work. The presentations had to be perfect, the numbers had to tick and tie and, although it rarely makes a difference, the stock prices throughout the presentation had to be updated as of the previous day’s close.

Subscribe now

What’s a Fairness Opinion anyway?

For the uninitiated, a fairness opinion is a professional evaluation, usually conducted by an investment bank or financial advisory firm, that assesses whether the financial terms of a merger or acquisition are fair, from a financial point of view, to the shareholders. The distinction of “from a financial point of view” is important in that it is not meant to address any other aspects of the transaction. It also does not say whether the deal is good or bad—just whether the price being paid is within a reasonable range based on financial analysis. The key point here is that the banks are not assigning a specific value to the company as an equity research report would with target price or an audit firm does in their typical valuation work.

While some might say that these fairness opinions are there only to justify deal terms that have already been agreed to, investment banks take fairness opinions seriously because their reputations, legal liability, and future deal flow depend on getting them right as a shareholder lawsuit or SEC request may require disclosure of the work product and open the firm to scrutiny. All that being said, it’s unlikely you will ever see a fairness opinion where the buyer is paying too much or the seller is accepting too little.

The Deal on the Table

As a reminder, Mars offered USD 83.50 for each share of Kellanova, implying a total equity valuation of USD 29.4 billion and enterprise value of USD 36.4 billion1. The proxy statement discloses the set of internal projections provided by Kellanova:

Based on these, the implied valuation multiples are:

Price-to-Earnings (P/E) multiples were not shown in the proxy statement but would be 22.6x, 20.9x and 19.6x for 2024, 2025 and 2026, respectively.

The Football Field

While the investment banks are required to disclose the contents of their fairness opinion materials, they are also not obliged to make it easy to read or digest. Rather than simply adding a few slides, the information is spread across eighteen pages of single-spaced prose.

To make things easy, here is a summary of the valuation analysis of each of the advisors. Commonly referred to as the “Football Field” because, like a carefully marked American football gridiron, this chart lays out the entire playing field of valuation ranges—spanning from the most conservative estimates to the most aggressive hail maries down the field. And because finance bros like sports analogies.

Both opinions layout commonly used valuation methodologies like Discounted Cash Flow, Transaction Multiples and Trading Multiples, along with less “academic” ones like the Present Value of Future Stock Prices and the Present Value of Target Prices, which would make my Wharton finance professor shake his head in disappointment (sorry, Pr. Gültekin).

What you can see from the summary is that the USD 83.50 per share offered is on the high-end of the valuation ranges shown, meaning that the Kellanova shareholders are getting a fair, if not good, deal. The valuation ranges of Goldman and Lazard are reasonably similar for each methodology, except for the Transaction Multiples where Goldman’s range implies that Kellanova could be worth anywhere from USD 59 to USD 119 per share.

Discounted Cash Flow Analysis

With the projections provided by Kellanova taken at face value by both Goldman and Lazard, any variance in the results must come from the other assumptions used, which in the case of a DCF are mainly the weighted average cost of capital (“WACC”) and terminal value assumptions at the end of the forecast in 2027.

The WACCs used are similar, with Lazard’s going for a slightly tighter range. For the terminal value, Goldman used an EBITDA multiple while Lazard opted for a perpetuity growth rate of 1.5-2.0%—a range for packaged foods companies that doesn’t seem to have moved by more than 50bps in the last thirty years. Goldman also noted in the text that its EBITDA multiple range implied perpetuity growth rates ranging from 1.0% to 2.6%. With both of its key assumptions wider than Lazard’s, Goldman’s resulting DCF valuation range was as well.

Trading Multiples - to include or not include?

While the DCF provides limited “artistic freedom” in the context of a fairness opinion using the same projections, the approach for the trading multiples valuation analysis can vary more significantly. A lot of judgement—and massaging—will go into the selection of the companies and the multiples used.

In a somewhat unorthodox move, Goldman did not explicitly use trading multiples in rendering its opinion but provided reviewed and compared the valuation multiples for “illustrative purposes only.” The omission is interesting as Goldman presented trading comparables just a year earlier in its fairness opinion for another food deal, the sale of Sovos Brands to Campbell Soup.

For Kellanova, Goldman created two groups of companies: “Snacking” which included Hershey, Modelez and PepsiCo, and “Center of Store” which included Campbell Soup, Conagra, General Mills, JM Smucker and Kraft Heinz. They simply noted that the median EV / NTM EBITDA multiple for the Snacking and Center of Store groups were 14.8x and 9.9x, respectively.

Lazard went with a similar grouping, “Snacking” and “Diversified Grocery”, with just Post Holdings as an extra name. Lazard also anchored around 2025 estimates, meaning that they were slightly further out than Goldman’s “Next Twelve Months”.

“Based on its experience and professional judgment, after taking into account, among other things, such observed multiples,” Lazard applied a range of 11.0x-13.5x 2025E EBITDA and 14.0x-19.0x 2025 EPS, essentially falling in between the Snacking and Diversified Grocery medians implying that Kellanova was a mix of both.

One interesting note here for the SEC filing nerds is that Lazard did not disclose the full table as shown above in the initial proxy statement filed on September 14, 2024. It was in a subsequent filing on October 21, 2024, that Kellanova filed an amendment with this (and other) additional information from the fairness opinions “in order to moot” certain demand letters for additional disclosure “and avoid nuisance and possible expense and business delays.”

Transaction Multiples (always save these)

The third key valuation methodology will be transaction multiples. Both advisors included 11 different transactions in the food space, although only five of them overlap.

Lazard took a traditional approach of using Enterprise Value to LTM EBITDA and included both listed targets and carve-outs (e.g. Planters, Unilever Spreads business, and Reckitt’s Food Division). The median of the group is 16.7x EV / LTM EBITDA, the mean is 16.5x, the 25% percentile is 15.1x and the is 75% percentile 18.9x. “Based on its professional judgment” Lazard selected a valuation range of 15.5x to 17.5x, what looks to be one turn above and below the mean and median. Once again, Lazard had not provided the detail of each transaction in the initial proxy filing (just the mean, median and percentiles) and only added the multiple for each transaction in the subsequent filing.

For its part, Goldman once again took a slightly unorthodox approach by using a forward (“FY1”) multiple rather than the traditional trailing multiple. This would explain why only public deals are included as the forward looking data is generally not available in carveouts or private targets. In contrast to Lazard, Goldman included the multiple for each transaction in the initial filing. In the amended filing, however, they added the transaction value for each deal while Lazard did not (🤷‍♂). Goldman’s also highlights the magnitude of the transaction: the largest all-deal ever and the second largest transaction after the Kraft-Heinz merger.

Interestingly, Goldman did not include the acquisition of Sovos by Campbell Soup—a deal they advised on—in their list. The median for their set is 16.2x EV / FY1 EBITDA. While Goldman also noted that they used their professional judgment and experience, they must not have done too much thinking on this one, as they selected a range of 12.1x to 21.5x, the lowest to the highest, inferring that the company could be worth anywhere from USD 29 billion to USD 48 billion. Close enough!

An analyst spent a lot of time calculating and checking these transaction multiples. Save them for reference!

PV of Future Share Price? Don’t Tell Your Finance Prof

A common but not very academic analysis included in fairness opinions is what is commonly referred to as the “Present Value of Future Share Price” analysis presented by Goldman. What this essentially does is try to answer what shareholders could expect if Kellanova did not sell to Mars and remained a public company. This is where we get a glimpse of what Goldman believed the trading multiple for to range to be: 11.5x to 14.5x EV / NTM EBITDA. They applied this range to Kellanova’s EBITDA projections and calculated and what the theoretical share prices would be in the future. They then discounted those theoretical shares price, together with expected dividends per share, back to the present (June 30 2024 for this purpose) using Kellanova’s equity cost of capital (which they calculated as 6.9%). Their conclusion was that the shares could be worth anywhere from USD 61 to USD 90 per share (today) if Kellanova stayed independent.

Lazard did something similar. They surveyed all the published equity research analyst price targets and discounted those back one year using a cost of equity of 7.0%. The resulting range was much lower: USD 56 to 68 per share, meaning that Wall Street’s near term expectations were not particularly bullish (the ninety day volume weighted average price prior to the announcement was about USD 59).

The Fees

Goldman Sachs, Kellanova’s lead advisor on the transaction, will be paid a fee of USD 93.2 million upon completion of the merger, equivalent to 0.26% of the enterprise value. Lazard, on the other hand, who was only brought on as a second advisor in mid-July when the deal was well underway, will earn a comparably modest fee of USD 10 million. While the engagement letters were not publicly disclosed, Goldman’s fee was likely agreed as a percentage of the enterprise value while Lazard’s as a flat number (or perhaps with fixed increments).

The difference in the level of fees between the two firms highlights how critical it is to be the lead advisor on a sell-side assignment. Goldman had been a long time advisor to Kellogg, advised on the spin-off of WR Kellogg and likely spent years investing in the relationship. Goldman’s engagement letter with Kellanova was only signed in July 2024, once again highlighting the implicit trust in the relationship between the two.

The fact is that while Kellanova agreed to the fees, it’s Mars who will ultimately bear their cost when they take over the business with USD 103 million less of cash in the bank. The fee letters were made available to Mars according to documentation, but probably only after the final USD 83.50 per share offer was agreed to.

The total fees are indeed eye-watering on their own but are ultimately only a small fraction (0.35%) of the offer price. If Goldman and Lazard can show that their involvement added just 29 cents per share to the final offer, they can then argue that they paid for themselves. The law firms, meanwhile, are spared from public disclosure of their fees.

On the other side of the transaction, we do not know what Citigroup will earn as Mars’ financial advisor. JPMorgan and Citigroup will also earn significant fees from arranging the USD 29 billion package to finance the acquisition. Morgan Stanley, who had also advised on the Kellanova spin-off with Goldman, seems to be one major firm left out in the cold.

Is this a good deal for Mars?

Mars’ acquisition of Kellanova seems like a shrewd strategic move. It was a bold bet by Mars to approach Kellanova directly, get the Board’s attention with a strong opening offer and avoid a full blown auction. It helps tremendously that Mars is privately held and does not have to deal with the opinions of equity analysts and public investors.

Kellanova brings some strong brands and interesting international footprint. It’s worth noting that this deal would have happened if it were not for the separation of the Kellogg’s snacking and cereal businesses in 2023 and credit is due to the board for that value creation initiative.

Kellanova’s expected growth is still rather bland, with 3.3% revenue and 7.8% EPS 2024-2027 CAGR, so the price paid by Mars has a substantial brand and scarcity premium when adjusted for growth (2.9x EPS growth). There should be significant synergy opportunities in distribution, however, and Mars is a patient investor with a long track record of success in growth markets.

Looking Ahead: What’s Next for the Food Industry?

As of March 23, 2025, the Mars-Kellanova merger remained pending antitrust approval, although technically still on track to close within the estimated timeline of Q2 2025. While regulatory scrutiny is a given for a deal of this magnitude, the broader implications of this transaction are already rippling through the food industry.

This USD 36 billion deal is more than just a transaction—it’s a potential catalyst for further consolidation in the food sector. As consumer preferences shift toward healthier options and inflationary pressures squeeze margins, companies are increasingly seeking to access higher growth and margin categories through M&A. Bankers, of course, are eager to orchestrate the next big deal. But the question remains: will this merger set off a wave of further consolidation?

Only time will tell, but one thing is certain: the Mars-Kellanova deal will has set another benchmark for large-cap M&A valuations. For now, all eyes are on the regulators.

What’s your take? Will this deal reshape the food sector, or is it just another chapter in the ongoing story of consolidation? Did Mars snag a rare trophy asset or did they overpay? Share your thoughts in the comments below.

Next up on Mergers & Tribulations, the Nordstrom take-private: A Saga in Three Acts. Stay tuned.

Today, in Part II, we dig into the merger agreement itself where, in a brisk 80 pages excluding the schedules and exhibits, legal counsels Kirkland & Ellis and Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates (yes, that’s a mouthful - or, “Skadden” as they are commonly referred to) detail the terms of the deal, the conditions for closing, the outs, how risks are shared, how rewards are protected and how each side plans for the unknown. It’s also where creative deal structuring emerges, particularly for complex transactions with regulatory scrutiny, interlopers, and competing incentives.

The agreement that emerged from those intense August negotiations tells us as much about each side's priorities and concerns as any board presentation. There’s too much for this amateur to cover but let’s dissect how Mars and Kellanova's teams solved the puzzle of combining two food giants under intense regulatory scrutiny.

High Level Terms

We touched on the deal terms in Part I, but below is a quick summary of where the two sides landed.

How they got there

We of course do not have direct insights into the evolution of the negotiations, but we can piece together the key sticking points from the exchanges of drafts referenced in the background section of the merger agreement.

Below is a schematic of the evolution of the key of the terms as the two sides exchanged drafts over an intense three-week period that highlights the key sticking points, such as the ticking fee as one of the last points to be dropped, and the less contentious ones like the voting agreement.

Voting Agreements: locking up key shareholders

One key defensive parts of the deal is the voting agreements from Kellanova’s key shareholders: the W.K. Kellogg Foundation Trust (originally established by by cereal pioneer Will Keith (W.K.) Kellogg) and members of the Gund Family (early investors in Kellogg’s) owning 14.8% and 5.9% of the shares of Kellanova, respectively. The voting agreements bind each of them to vote all of their shares in favor of approving the merger as well as prohibiting them from supporting competing bids or proposals that could impede the deal with Mars.

The voting agreements thus locked-up Kellanova’s arguably two most influential shareholders and 21% of the shares, making it much harder for an interloper to succeed even if the offer was deemed to be a “Superior Proposal” by the board.

Keeping a tight leash on potential interlopers

In addition to the voting agreements, Mars bolstered its protections by adding robust and extensive no-solicitation provisions that had Kellanova and its advisors halt any discussions with third parties, barred them from soliciting any competing bids and even had them request the return or destruction of any confidential information sent to any other potential other bidders as far back as 2021!

While Kellanova board had the right to accept a superior unsolicited deal, Mars was not going to make that easy. Any unsolicited interest would need to be promptly relayed to Mars including the identity of the interested party, any requests for information and a description of the material terms of such “Company Takeover Proposal.” What constituted a Company Takeover Proposal had a relatively low barrier of just 20% of Kellanova’s outstanding shares, assets or revenue, rather than a full acquisition.

Anti-trust: Performance standards and a burdensome conditions

With regulatory approval being one of the critical hurdles to closing, the subject was heavily negotiated in the merger agreement. As we noted above, Mars fought hard to have sole control on regulatory-related decisions and strategy. This included having control over the communications and filings with the various regulatory bodies, as well - importantly - control over the sale process of any divestitures required required to win approval.

Reasonable Best Efforts

It takes a village to close a transaction of this complexity and the merger agreement goes into exhaustive detail to capture all the actions the parties need to “promptly”, or “as soon as practicable” or “as reasonably practicable”, do or not do to obtain regulatory approval, while of course cooperating, consulting, and notifying each other, as required by the agreement.

All these actions are prefaced with using “reasonable best efforts.” What that actually means (especially as it is not defined) has been oft debated and litigated although some case law has leaned to defining “reasonable best efforts” (and its cousin “commercially reasonable efforts”) as “impos[ing] obligations to take all reasonable steps to solve problems.”

Importantly, the merger agreement is consistent: the term is used 21 times and there are no other variations that could create the semblance of a hierarchy in meaning. It is qualified only once, to highlight that it could not be used to force Mars to accept financing terms materially worse than what the banks had initially committed1.

While this seems like a minor, it had serious implications in the failed Kroger-Albertsons merger where all the antitrust-related performance obligations were held to a “reasonable best efforts” standard, except for the clause relating specifically to Kroger’s obligations, which were held to the stronger “best efforts” standard. A small but significant distinction—which Albertsons (and owners Cerberus Capital) are hanging their hat on in a lawsuit seeking major damages for breach of contract and failure to exercise “best efforts” and to take “any and all actions” to secure regulatory approval.

The Burdensome Condition

One of conditions to closing in the agreement is that there is no “Burdensome Condition” on Mars to obtain regulatory approvals, which is defined as anything that has to do with Mars’ existing business (i.e. they can’t be required to sell any of their businesses without their consent) and any divestiture of Kellanova assets totaling revenues of more than USD 750 million. Mars can waive this condition, but it is up to them. Nevertheless, the pressure is still on Mars as any failure to close by the outside date because of a failure to obtain regulatory approval would require them to pay the USD 1.25 billion Reverse Termination Fee.

The USD 750 million threshold (pushed up from USD 500 by Kellanova during negotiations) represents less than 6% of Kellanova’s USD 13 billion in revenue in 2023, but the threshold is meaningful in that it covers four of Kellanova’s five largest brands. Given the concentration of the portfolio, there are few whole businesses that could be a “forced” sale.

Closing Conditions: really just one, anti-trust

The merger agreement does not contain any financing-related conditions although it did require Mars to undertake to obtain financing for it, which Mars did through a USD 29,000,000,000 (!!) bridge loan facility from J.P. Morgan and Citi.

The three main closing conditions are:

1. Approval by the Kellanova shareholders: received on November 1st, 2024.

2. No Material Adverse Effect (MAE): Absence of any significant deterioration in Kellanova’s business or external events disproportionately impacting the company (and subject to a lot of customary carveouts).

3. Regulatory approvals: the deal will require the approval of a host competition authorities. In addition to the FTC and European Commission, it’s likely authorities in the UK, Canada, China, India and Australia will also review the transaction.

Shareholder approval was of course a must (but limited risk barring a competing bid and supported by the voting agreements) and the heavily negotiated MAE clause is largely out of their hands, making regulatory approvals the biggest risk to the transaction. As of February 7th, 2025, neither the FTC nor the EC had yet to approve the merger, although the exit of FTC Commissioner Lina Khan following the arrival of the Trump administration may have brought some relief to the anxiety of both sides.

The Road Ahead

With shareholder approval secured and financing locked in, the final and most significant hurdle remains: regulatory clearance. The Mars-Kellanova merger is the largest packaged food transaction in nearly a decade, and while both sides meticulously crafted their agreement to navigate antitrust scrutiny, the regulatory environment remains unpredictable.

For now, both companies wait, the legal teams keep billing, filings are prepared, and lobbying has surely intensified behind the scenes.

Stay tuned for Part III where we will dive in to the fairness opinions of Kellanova’s financial advisors Goldman Sachs and Lazard where a lot of deal details and market information (and the fees) are often buried.

Update: continue with Part III here.

On a quiet Wednesday in August 2024, Mars Inc. ended a decade-long drought in big-ticket food M&A. The privately-held confectionery giant's USD 36 billion bid for Kellanova sent shockwaves through the packaged foods industry and likely had investment bankers not on the deal choking on their morning coffee as they realized they'd missed the largest transaction in the sector since Kraft-Heinz in 2015.

The numbers were enough to wake up any consumer banker: USD 83.50 per share, a 33% premium to Kellanova's 52-week high, and an eyebrow-raising 16.4x LTM EBITDA multiple.

But the real story wasn't just in the price tag – it was in how two 100+ year-old industry stalwarts had quietly orchestrated a deal that would create a USD 63 billion revenue powerhouse with 17 billion+ brands that brought family-held Mars to a virtual tie with Unilever as the second largest packaged foods company in the world behind Nestlé (USD 105 billion in revenue). The two sides even created a website for the deal.

Within about a week, however, the news cycle, research analysts and merger arbs moved on to other things as there was not much more to report on or analyze, especially as Mars was private held.

On September 11, 2024, however, Kellanova filed its preliminary proxy statement on the transaction. This is where all the juicy bits about the transaction are buried.

Let’s dig in!

Subscribe now

Background of the Merger

One of the key disclosures required by the SEC in the proxy statement is the “Background of the Merger” section, which is designed to ensure transparency for shareholders, providing them with a clear and detailed account of the process that led to the merger decision. This is where I like to look first. The task is often left to the junior bankers to recount (as I did) the blow by blow of the transaction since its inception.

As per the proxy statement, the deal spanned about 10 weeks from the initial meeting on May 31st to the announcement date on August 14th (see Timeline of Events), or about 10 weeks - a rather “efficient” (aka “miserable,” for the deal team) - timeline for an M&A deal1.

Here’s an outsider’s view of the transaction timeline with absolutely no inside information or sources.

The Opening Gambit

In the world of M&A, timing is everything. When Poul Weihrauch, Mars' CEO, invited Kellanova's Steve Cahillane to lunch at Skadden's Chicago office on May 31, 2024, he wasn't just making a courtesy call. While the transaction timeline starts there, Mars had most likely been preparing for this transaction for months, if not since March 2023, when Kellogg Company announced it would separate its North American cereal business from its global snacking, international cereal and noodles, plant-based foods, and North American frozen breakfast business (wow, that’s a mouthful) in a tax-free spin-off, to be renamed WK Kellogg and Kellanova, respectively. The spin-off was completed in October 2023.

The choice of venue for that first meeting – Skadden's offices rather than a more “social” location – was telling. Mars came prepared, following up the lunch with a USD 77 per share, unsolicited, opening bid, complete with a priority due diligence list and indications of committed financing. This wasn't a fishing expedition; Mars was ready to move.

Just five days (and five all-nighters) later , on June 5, Kellanova held a board meeting where Goldman Sachs presented its analysis of the May Offer while its legal adviser Kirkland & Ellis provided guidance on “responding to unsolicited acquisition inquiries and potential approaches to conducting a market check” - the latter point being crucial down the line.

But if Mars thought they could rush Kellanova to the altar with a premium bid and a tight timeline, the response from the Board on June 6 was a polite but firm rejection anchored in confidence in their standalone plan.

The Dance of Due Diligence

On June 14, Citi and Goldman connected to discuss the May Offer. Goldman reiterated Kellanova’s confidence in executing its strategic plan and that the Company was not willing to provide access to private diligence materials based on the May Offer.

What followed was a sophisticated game of information management. After rejecting Mars' second bid of USD 80 per share on June 26, the Board nevertheless authorized management to provide Mars with limited due diligence information in order to enable to increase its proposal.

The progression from this point was methodical. Mars was granted access to a data room on July 6, but the real meat came in the July 22 management presentation during which the Kellanova team discussed its “financials and performance and various aspects of [its] Strategic Plan, including, among other topics, the growth drivers for Kellanova’s businesses by region, the key levers of margin expansion by region and the components of gross margin expansion….” The message was clear: there's more value here than your current bid reflects. The next day Mars sent a revised offer of USD 82 per share along with a draft of the Merger Agreement.

The key points of the Merger Agreement called out in the proxy statement include:

1. a voting agreement from the Gund family and the Kellogg Foundation Trust;

2. a reverse termination fee payable by Mars in certain circumstances;

3. a termination fee payable by Kellanova in certain circumstances;

4. a 12 month longstop date with one six-month regulatory approval extension;

5. a regulatory efforts covenant requiring both Kellanova and Mars to use their “reasonable best efforts” to obtain regulatory approvals subject to a “Burdensome Condition” standard which would not require Mars to divest Kellanova assets over a certain threshold; and

6. a non-solicit provision prohibiting Kellanova from seeking other proposals.

On July 26, the Kellanova Board discussed the latest offer and the “other potential counterparties that may be interested in pursuing a transaction” and “possibility of an interloper emerging following execution of a transaction with Mars….” The conclusion was to push for “a valuation closer to USD 85.00.”

The proxy states that when Cahillane passed the message on to Weihrauch that same day, Weinrauch responded that Mars would not provide an offer of USD 85 per share that “Mars would terminate discussions… rather than transact at the valuation.”

Nevertheless, on July 30, Weihrauch raised Mars’ bid to USD 83.50 per share, a shade below the asking price. Cahillane called back that same day to accept the offer subject to agreeing on documentation.

On August 2, Kellanova sent Mars a revised draft Merger Agreement that included a monthly ticking fee that would be payable if the transaction did not close by the end of 2024 (more on that later), a lower termination fee should Kellanova accept a superior proposal after signing the deal and specific deadlines for making regulatory filings.

The next week included a sprint of diligence calls and and site visits at Kellanova facilities in Michigan, Tennessee, Poland and England - a boon for the junior bankers sent to chaperone to collect some frequent flyer miles.

Plot Twist: the Reuters Leak

The game changed dramatically when Reuters broke the story on August 4. Whether the leak was inadvertent or shrewdly placed, it smoked out three potential interlopers.

Three interlopers are mentioned in the proxy. The CEO of “Party A” emailed Cahillane directly and express their interest to acquire Kellanova. Two other companies, “Party B” and “Party C” reached out to Goldman to express interest in buying just parts of Kellanova (if, for example, should Mars be required to divest any to assets to clear anti-trust hurdles). While it’s impossible to know who these companies were, only a few companies around the world could afford to pay more than Mars’ USD 36 billion. Best guess is Nestlé as Party A.

Citi's message to Goldman Sachs was unambiguous, however: slow down the process to talk to other bidders, and Mars walks.

The leak did solve one issue: the market check. With rumors of the deal now in the public domain and interested having raised their hands, Kellanova was absolved of having to do its own outreach and could happily check the box and proceed.

The Haggling

The end game negotiation provides a fascinating window into what each side valued most. Mars' final offer of USD 83.50 represented an 8.4% improvement from their opening bid – meaningful, but not excessive. But that’s not the end of it.

The termination fee tells its own story.

The final agreement landed on an USD 800 million termination fee from Kellanova but a USD 1.25 billion reverse termination fee from Mars. This asymmetry speaks volumes about the perceived risks and relative negotiating leverage. Mars needed to demonstrate their commitment to closing, particularly given the regulatory complexities inherent in a deal of this size in the food sector.

The regulatory risk allocation was equally nuanced. The final agreement settled on a USD 750 million revenue threshold for required divestitures – a number that appears carefully calibrated to address antitrust concerns without risking the deal's fundamental value proposition. This wasn't just about setting a number; it was about finding the sweet spot where both sides could credibly commit to seeing the transaction through.

The Ticking Fee That Wasn't

Perhaps the most interesting battle in the final days centered on the “ticking fee”. On August 2nd, Kellanova introduced the concept of a monthly fee payable by Mars in the event the transaction did not close by the end of 2024 in their first set of comments to the merger agreement. Over the next two weeks, Mars removed - and Kellanova re-inserted - the ticking fee another four times in the deal terms.

On August 12 Kellanova put some numbers on the ticking fee, asking for an additional USD 0.14 per share payable for each month elapsed after March 2025 in which the closing had not happened. While having a ticking fee in a deal with a potentially long regulatory process is not unique, it’s still pretty rare. The fee equated to an annualized interest rate of barely 2% - not even covering inflation - but Mars probably huffed and puffed that it was off-market and they there were already bearing significant costs like the financing commitments during the pre-close period.

Mars ultimately drew a hard line here, making its removal a “best and final” issue. With everything seemingly settled, Kellanova accepted its removal and instructed its lawyers to finalize the merger agreement.

While only the deal till will know, it’s quite possible that Kellanova never really expected the ticking fee to make it to the final agreement and introduced it as something to eventually trade or hold on to until other issues were settled.

The Art of the Possible

What makes this transaction particularly instructive isn't just its size. It's how two sophisticated parties navigated a complex landscape to reach their objectives: Mars had clearly did a lot of planning to launch and successfully execute such a large public deals, even under intense scrutiny.

Meanwhile, Kellanova's board played their hand with precision. They leveraged their status as a marquee brand and put forward their standalone plan to extract four price increases and a benchmark transaction multiple while maintaining a constructive dialogue. When the Reuters leak brought interlopers to the table, they used that competitive tension without letting it derail the process. Most tellingly, both sides understood where to bend and where to stand firm. Mars' willingness to accept a higher reverse termination fee balanced against Kellanova's ultimate give on the ticking fee shows how price is just the starting point of the negotiations.

In Part II, we'll look at the key commercial terms of the merger agreement itself, the contentious issue and how the two sides ultimately got to a deal.

Share

Subscribe now

1

Timeline of events

When it comes to earnouts in M&A deals, I like to quote the Vice Chancellor J. Travis Laster of the Delaware Court of Chancery in his ruling in Airborne Health, Inc. v. Squid Soap, L.P.:

“an earnout often converts today’s disagreement over price into tomorrow’s litigation over the outcome”

Earnouts featured in 26% of deals involving a private target according to a 2023 study by the American Bar Association. This figures increases dramatically in sectors such as life sciences or when private equity is involved.

While earnouts seem like a good solution to bridge valuation gaps between buyers and sellers, they are difficult to put in place in practice, let alone describe in a share purchase agreement, especially when it comes to milestone definition, measurement, control over outcome, monitoring and standards of performance.

In negotiating performance standards in M&A agreements, the deal teams will often throw around terms like “best efforts” or “reasonable best efforts”. Once lawyers get involved, they will caution you to tone it down to a softer but still somewhat nebulous “commercially reasonable efforts.” This could be for pre-completion, such as obtaining third party consents or regulatory approval, or post-completion obligations such as collecting outstanding receivables, maintaining key customer relationships or…achieving earnout milestones.

When it comes to earnouts, these performance standards carry enormous financial weight. Three recent Delaware Chancery rulings on earnout disputes illustrate this stark reality, where the choice of language meant the difference between outright dismissal and billion-dollar damages.

Three cases, three different outcomes

1. Synthimmune x Alexion: When “objective” standards don’t go your way

• Transaction: Alexion acquired Syntimmune, a clinical stage biotech company, in 2018 for USD 400 million upfront plus up to USD 800 million in milestone payments. The transaction centered on Syntimmune’s lead candidate ALXN1830, a promising monoclonal antibody for rare diseases. The first major milestone of USD 130 million was tied to successful completion of Phase 1 clinical trials. Subsequently, Alexion itself was acquired by AstraZeneca, adding complexity to the milestone achievement landscape.

• Path to Litigation:

  • Root Cause: Series of development deprioritization decisions following COVID-19

  • Trigger Events:

    • Post-pandemic resource reallocation away from ALXN1830

    • AstraZeneca acquisition leading to program review

    • Program termination based on disputed safety data

• Critical Context: Competitors continued advancing similar programs while Alexion retreated.

• Language Used: The agreement required Alexion to use “commercially reasonable efforts” to achieve each milestone for seven years after closing. Following negotiation, the parties agreed to use a “customary objective standard” and defined that as “[U]sing such efforts and resources typically used by biopharmaceutical companies similar in size and scope to [Alexion] for the development and commercialization of similar products at similar development stages….”

• Key vulnerability: the use of objective definition allowed the court to scrutinize Alexion’s actions as compared to what a hypothetical company would do in a similar situation.

• Ruling: The court determined that Alexion’s “deprioritization” actions in 2020 did not rise to “commercially reasonable efforts,” because that decision was driven by an idiosyncratic corporate initiative and a “hypothetical company” would not have otherwise defunded such a product. The court noted that Alexion’s competitors were all moving forward with the development of competing therapies during that time.

• Outcome: Damages in excess of USD 130 million awarded to the former Synthimmune shareholders.

2. Auris Health x J&J: USD 1bn+ award

• Transaction: J&J acquired venture-backed Auris Health, a developer of surgical robots, for USD 3.4 billion up front in cash and up to USD 2.35 billion in cash upon the achievement of certain regulatory and net sales milestones.

• Path to Litigation: J&J’s post-acquisition internal competition (“Project Manhattan”) between acquired iPlatform and its own Verb robot.

• Trigger Events:

  • Diversion of 80+ Auris personnel from milestone-related development

  • Writing down milestone values to zero for accounting purposes

  • Internal communications suggesting milestones were "canceled"

• Critical Timeline: Development delays from competitive assessment ultimately prevented meeting regulatory milestone deadlines thus denying the earnout payments.

• Language: In contrast to the case above, the parties used an inward-facing efforts provision tying J&J’s efforts to its own “usual practices” for a “priority medical device.”

• Critical Element: Explicitly prohibited consideration of the cost of any actual or potential milestone payment in development decisions

• Ruling: The court found that J&J deliberately impaired iPlatform’s development to benefit its competing Verb device. J&J knew its internal assessment would hinder – rather than promote – iPlatform’s achievement of the regulatory milestones.

• Outcome: The court awarded damages of more than USD 1 billion to the former shareholders of Auris.

3. Companion Medical x Medtronic: Case Dismissed

• Transaction: Medtronic acquired Companion Medical in 2020 for an undisclosed upfront amount plus a USD 100 million potential milestone payment. The deal brought Companion's smart insulin pen technology into Medtronic's diabetes unit portfolio. The milestone payment was purely commercial, requiring hitting certain sales targets in the two after closing.

• Path to Litigation:

  • Root Cause: Failure to achieve sales milestone

  • Trigger Events:

    • Mass exodus of Companion’s sales team due to new employment terms

    • Delayed marketing program implementation

    • Limited regulatory clearance pursuit

• Distinguishing Factor: Unlike other cases, centered on passive non-action rather than active impediment

• Language: In contrast to the two examples above, the agreement did not contain an affirmative obligation. Instead, the buyer could not “take any action intended for the primary purpose of frustrating the payment” of the earnout. Further, the agreement stated the buyer had “sole and absolute discretion" in commercialization decisions regarding the acquired products. The combination of two was the tragic flaw in the plaintiff’s case.

• Outcome Driver: Contract language effectively immunized passive impediments to milestone achievement.

• Ruling: In its opinion the Court noted that “Medtronic had secured for itself sole discretion to take actions that Medtronic knew would frustrate the First Milestone, so long as the action had some other primary purpose. [Seller] freely assented to that arrangement. The Court is not aware of any Delaware precedent applying such a buyer-friendly contingent payment scheme….” 💀

So what?

1. The recent rulings illustrate the importance of the language used for the “efforts standards” in the agreements on the likelihood of prevailing in court.

   → From a buyer’s perspective, “sole and absolute discretion” > inward-facing reasonable efforts > outward-facing reasonable efforts.

   → And definitely don’t use “best efforts”!

2. While an outwardly-facing definition of “commercially reasonable effort” standard is generally viewed as being more objective, it leaves the determination of what that is in the hands of the court and to judge the buyer’s actions with the benefit of hindsight.

3. Aside from ending in litigation, the cases above demonstrate how using earnouts can be fraught with complexity and risk. It’s difficult, if not impossible, to foresee all the different paths a deal can take post-acquisition, or the external and internal factors (including conflicts of interest) that may impact the likelihood of an earnout being paid out or not.

Subscribe now