CDT Roundup: 11 Deals, 8 Firms, 99 Lawyers, $2.5B
By Claire Poole & Allen Pusey | The Texas Lawbook, February 8, 2022
M&A in 2021 was full of surprises, even in Texas — especially in Texas. The Texas-driven transaction count was up 53% over 2020 and deal value up 133%, according to The Texas Lawbook Corporate Deal Tracker.
That 2020 provided a pandemic-lowered bar needs to be acknowledged. But a hard look at some of the numbers behind the dramatic comeback of M&A shows a burst of activity in sectors that before last year could be all-but-ignored. Healthcare is an obvious gainer. Supply chain infrastructure, another. But one sector that changed dramatically was food.
The CDT numbers show 31 “Food & Beverage” deals. These weren’t only transactions involving convenience food chains and yogurt shops, but far more complicated deals that easily be placed in other sectors: food ingredient manufacturing (manufacturing), custom food delivery technologies (technology) or even food waste disposal (renewable energy). Some of these are food deals that were conceivably accelerated by new concerns, not just for health and convenience, but for a new world of social distance and energy transition.
There was the sale of the restaurant software platform Menufy to HungerRush, advised by Willkie, the Kirkland-led merger of food technologies provider Benson Hill to a SPAC and the $1.1 billion sale of Valley Proteins, recyclers of cooking oils and chicken renderings, to Sidley-advised Darling Ingredients for their use in biofuels.
Perhaps the best example is the $1.3 billion merger in December of California-based Sunbasket and Dallas-based Prüvit, two food-centered businesses focused on the ketogenic diet regime.
Prüvit is a multi-level marketing company that since 2015 has been marketing Ketogenic consumption through supplements and diagnostics, including the use of ketone test strips and advice about food — but not keto-friendly food itself. On the other hand, Sunbasket, founded in 2014, prepares and delivers ready-to-eat, keto-friendly meals to households.
The two companies found themselves at the center of a Venn diagram whose circles of accelerated demand included health and wellness, home-delivery and pre-prepared meals. And even in the middle of a pandemic the need for expansion became obvious to both.
“We had the marketing and the education strategy,” said Prüvit general counsel Jenifer Grace. “But the biggest question we would get [from customers] would be: what do I eat? They had quality food that they were already delivering; but they needed our marketing reach.”
After a long period of what Grace described as “dating,” the relationship became more serious in October 2020 with a letter of intent. At that point the attentions of the two companies turned practical.
San Francisco-based Sunbasket was represented by Cooley partners Dave Young and Matt Hallinan; Prüvit with a team led by shareholders Chris Williams and Kelly Kubasta of FBFK, a 46-lawyer full-service Texas firm. The FBFK team also included shareholder Alex Parker and attorney Mackey Culbertson.
Aside from the obvious benefits of a merger, there were also obvious obstacles. Sunbasket had emerged with a traditional California venture capital structure with multiple classes of stockholders; Prüvit was a closely-held enterprise. The businesses were different, the cultures were different, and from mid-December 2020 through April 2021 discussions went dark.
“We didn’t know what was going on,” said Williams, a shareholder at FBFK. “We just didn’t hear much.”
When talks did resume, according to Williams, the questions became more practical, especially the diverse structures of the two. The two sides settled on a “double-dummy” structure in which a holding company was created with two subsidiaries into which Prüvit and Sunbasket merged individually.
But still at issue were the multiple classes of shares at Sunbasket, including employee-held equity that would attract particular attention — and a likely lengthy holdover — at the SEC. California, however, is one of eight states to offer so-called “fairness” hearings that allow a cost- and time-efficient alternative to federal review. And Williams said the companies decided to submit their merger to the seldom-used process under the state’s Department of Financial Protection and Innovation.
“The state typically does only about 10 fairness hearings a year,” said Williams. “As a result, the staff is not overwhelmed, and the process turned out to be really efficient.”
The deal, at $1.3 billion the largest ever for FBFK, was signed in late November and announced at the end of the year. Although two companies are planning to continue as separate operations, they are still sorting through any available administrative synergies.