When Investing in Beverage Alcohol Deals

1. Consider the impact of regulation on deal structure—Structure the deal in a way that limits the cost and uncertainty of regulatory approvals. For example, consider whether the deal can be structured so that it falls within the exceptions to the tied house rules in the states in which the target company operates its business. Asset deals generally require filing for new licenses, while stock deals in a number of states merely require notice of a change in ownership.

2. Leverage the opportunities created by the rapidly changing landscape—Consider how the easing of the regulatory environment in certain states has or will impact the business and its margins and lower the traditionally high barriers to entry for competitors.

3. Specialized, in-depth due diligence is crucial—Review whether the target company complies with applicable laws, especially federal and state laws governing alcohol regulation. Be alert to hidden land mines like past violation of TTB Regulations against commercial bribery.

4. Take into account differences in states regulators—Consider the regulatory priorities and hot button issues of different states’ Liquor Commissions and how these may impact structure and timing of the deal. Where approvals may be required, a telephonic or in-person meeting with the regulator at the initial structuring stage may reduce bottlenecks to receipt of the approvals.

5. Consider who the sellers are—Is the seller a family-owned producer or distributor that may have considerations in addition to deal pricing driving the transaction?

6. Align incentives through deal structure—Consider how to structure the surviving entity to align investors’ goals with that of management through earn-outs.

7. Take into account legacy relationships—Take into account the impact of the transaction on the target’s legacy relationships with importers, distributors and retailers, especially long-standing contracts that may not have standard assign-ment provisions, and distributorships that may be protected from termination under state laws.

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8. Consider the impact of the transaction on the investor’s portfolio as a whole—Consider the rest of the fund’s portfolio to assess the impact of a potential acquisition of more than a certain percentage of inter-est in an importer/distributor or restaurants/other retailers.

9. Consider the impact of regulation on deal timing—Ensure licenses and permits are in place. Will the deal structure result in a change of control requiring approval or notice to licensing authorities? If so, consider the likely time periods required to obtain those approvals.

10. Be actively involved in assuring compliance post acquisi-tion—Make sure all post-closing notices are delivered, an active compliance program is in place and that there is a mechanism for the purchaser to monitor ongoing regulatory activities of the target.

Food, Beverage & Agriculture

Nixon Peabody is the only law firm in the United States with a truly holistic industry focus on Food, Beverage & Agriculture. We represent clients across all segments of the industry, including manufacturers of consumable goods, packaging and logistics, agribusinesses, retail, franchises and sources of capital. We help clients monetize their brands, navigate food safety laws, make profitable investments, protect human capital, anticipate legislative changes, embrace sustainability, globalize the supply chain—and more.

Private Equity

Nixon Peabody has one of the nation’s most active private equity practices dedicated to the middle and lower-middle markets. We specialize in forming and managing funds, representing groups in their investments, acting as general counsel to port-folio companies and resolving commercial disputes. Our private equity attorneys have experience with the structures, deal terms and risks unique to investments across all industries including media and telecom, manufacturing, higher education, consumer (especially food and beverage), life sciences, health care and energy.

About Nixon Peabody LLP

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For more information, Please contact:

James O. Bourdeau, Partner, Leader, Food, Beverage & Agriculture jbourdeau@nixonpeabody.com 585-263-1671

David Martland, Partner, Leader, Business Transactions dmartland@nixonpeabody.com 617-345-6145

Vince O’Brien, Senior Counsel, Beverage Alcohol Team vobrien@nixonpeabody.com 212-940-3139

Philip B. Taub, Partner, Co-Leader, Private Equity Transactions ptaub@nixonpeabody.com 603-628-4038

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