Explore the intricacies of an M&A setback as a buyer pursues a share in the $5 billion back-to-school market. Uncover the legal battle and key takeaways from a case involving licensing agreements, lost profits, and the importance of proving damages.
M&A Stories
November 7, 2018
In a recent M&A setback, a buyer aimed to tap into the lucrative $5 billion back-to-school market by acquiring the stationery division of a well-established consumer-goods wholesaler. The seller, holding valuable licenses with entities like Lego, Universal, and One Direction, seemed like a perfect fit for the buyer’s growth strategy.
However, post-sale, the buyer claimed the seller failed to facilitate the transfer of licensing agreements, leading to a protracted legal battle in a Michigan federal district court. The buyer sought damages, including lost profits, citing the seller’s breach of the asset purchase agreement.
The court, applying New York law, highlighted the buyer’s burden to prove, with certainty, that the lost profits resulted from the seller’s breach. Examining the evidence, the court noted the absence of crucial proof—no statement from licensors confirming that, with the seller’s efforts, licenses would have transferred.
The asset purchase agreement required the seller to use “commercially reasonable efforts” for license transfers. The court emphasized the buyer’s obligation to establish, on a license-by-license basis, that the seller’s alleged failure caused the loss. The buyer’s inability to secure licenses beyond Lego, coupled with internal disputes and rejections, weakened its case.
Ultimately, the court dismissed the buyer’s claim, underscoring that even if the seller breached the agreement, the buyer failed to prove a causal link between the breach and lost profits. Additionally, a contractual provision posed an additional hurdle for the buyer to recover lost profit damages from the seller.
Key Takeaway:
While a failed acquisition may prompt a buyer to scrutinize the purchase agreement for breaches, proving damages is essential. This case serves as a reminder that establishing a direct link between a breach and tangible losses is crucial for a successful claim.
Case Reference:
My Imagination, LLC v. MZ Berger & Co., Case No. 14-13321, United States District Court, E.D. Michigan, Southern Division (October 29, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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