Snow Phipps Says Kohlberg Breaking DecoPac Deal Over Pandemic

Private equity firm Snow Phipps Group LLC sued affiliates of Kohlberg & Co. in Delaware, claiming the investment consortium is trying to back out of a deal to acquire DecoPac Inc., the world’s top wholesaler of cake decorations, over coronavirus concerns.

“This case concerns a sophisticated commercial party’s deliberate effort to sabotage an acquisition to which it agreed a mere five weeks ago, when it was aware of the risks of Covid-19 and the related economic downturn,” the lawsuit says.

It accuses the Kohlberg entities of making “an abrupt about-face” after their attempts to renegotiate their financing broke down, then “manufacturing after-the-fact claims that the coronavirus excuses performance.”

The pandemic “was specifically known to the Kohlberg parties as a potential risk to this deal” when it was signed March 6, and they used it to negotiate the unspecified purchase price downward, according to the partly redacted Chancery Court complaint.

“Only after April 1" did the Kohlberg companies try to extract “additional concessions” from their lenders, “and, when they failed, unilaterally deemed financing unavailable,” the suit says. The investment group then allegedly cited its “newfound buyer’s remorse” in trying to terminate the deal.

The suit was made public Monday after being filed under seal April 14.

A Kohlberg spokesman said the allegations are “completely without merit.”

“Kohlberg has fully complied with each of its obligations,” he said. “We are prepared to defend the lawsuit.”

The case is the latest in a a wave of lawsuits asking courts to keep mergers on track as the coronavirus scrambles business deals worldwide.

Some of the other suits involve a business unit sale from Bed Bath & Beyond to 1-800-Flowers; a buyout of 34 franchise locations by CorePower Yoga; and allegations that CMX Cinemas is using the pandemic “as a pretext for walking away from” a deal to acquire a Houston-area movie theater chain.

Cause of Action: Breach of contract; breach of the implied covenant of good faith and fair dealing.

Relief: Specific performance.

Attorneys: Snow Phipps is represented by Abrams & Bayliss LLP and Quinn Emanuel Urquhart & Sullivan LLP. Kohlberg is represented by Morris, Nichols, Arsht & Tunnell LLP and Paul Weiss Rifkind Wharton & Garrison LLP.

The case is Snow Phipps Grp. v. KCAKE Acquisition Inc., Del. Ch., No. 2020-0282, complaint unsealed 4/20/20.