Snow Phipps v. KCAKE Acquisition: First Analysis

Summary

This article discusses Snow Phipps v. KCAKE Acquisition, in which the Delaware Court of Chancery ordered the buyer (Kohlberg) to close on its $550 million agreement to purchase DecoPac, a cake decorations supplier. Snow Phipps Grp., LLC v. KCAKE Acquisition, Inc., 2021 Del. Ch. LEXIS 84 (Del. Ch. Apr. 30, 2021). In doing so, the court easily rejected the buyer's claims that the COVID-19 pandemic resulted in a material adverse effect (MAE) and that the steps taken by the company to respond to the pandemic breached the ordinary course covenant. More novel was the way in which the court sidestepped the near-universal construct in leveraged buyouts that the seller will be entitled to a specific performance remedy requiring the buyer to close only if the buyer's debt financing is also available. The court—pointing to the "prevention doctrine"—concluded that the buyer's failure to use reasonable best efforts to obtain the debt financing was a breach of the agreement and, therefore, the buyer...