M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Friday, June 17, 2011

3M runs afoul of earnout

UK-based Acolyte was sold to 3M in 2007 for consideration that included up to £41m in earnout payments.  Acolyte has been developing a diagnostic test for the MSRA superbug.  Investors in Acolyte have recently brought suit against 3M for failing to live up to its obligations under the earnout agreement.  From the FT

Written arguments submitted to the High Court by the MoD and Porton state that the sale agreement included 3M making “earn-out payments” of up to £41m dependent on the net sales of Acolyte’s products achieved by 3M in 2009. However, no net sales were achieved in 2009 and no pay-out was made. 3M later made an offer of an earn-out payment of $1.07m.

The government and Porton claim that 3M’s marketing efforts in the UK and Europe “fell well short” of what was required by the sale agreement and that 3M never marketed BacLite at all in the US, Canada or Australia “despite an obvious hunger for the product in those countries ...

3M said in a statement on its website that it discontinued marketing BacLite because, after diligent efforts and spending substantial resources, the company believed the product did not meet performance and customer expectations.

These "reasonable efforts", "commerically best efforts" cases are relatively common in the context of earnout agreements - anyone remember Bloor v Falstaff or Comet Systems v Miva from law school?  

-bjmq

(H/T: The Middle Market)

http://lawprofessors.typepad.com/mergers/2011/06/3m-falls-afoul-of-earnout.html

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