When structuring and assessing transactions in the food and beverage sector in a European context, a purchaser must consider and evaluate several EU-specific requirements in order to ensure a successful transaction with appropriate legal protections for the purchaser. Since the food and beverage industries are highly regulated – and those regulations are strictly enforced – in the EU, legal due diligence on an acquisition target in those industries will involve numerous subject areas that would not be relevant to a deal within a less regulated industry.

During the deal process, the purchaser must weigh the pros and cons of structuring the transaction as an asset deal versus as a share deal, must closely review the target’s intellectual property, must conduct appropriate regulatory due diligence, and must take into account EU-specific peculiarities in the areas of litigation and enforcement.

TYPE OF DEAL

The process of evaluating different transaction structures – in essence, choosing to use an asset deal or a share deal – is not altogether dissimilar to the process a purchaser would follow in other jurisdictions, in that a purchaser would consider product liability risks and tax issues, among other things. However, a purchaser of a food or beverage business in the EU must also keep in mind a number of other factors:

• All ISO certificates and/or food-related approvals (e.g., for novel food products) are issued specifically to the target. In the case of an asset deal, such certificates and/or approvals will need to be reissued in the name of the purchaser in connection with the transfer of the business in order to ensure operational continuity. 
• In some jurisdictions (e.g., Germany), any violation of advertising laws or regulatory laws is also considered a violation of unfair competition laws, which can be enforced either by private businesses competitive with the target or by regulatory authorities. 
• Consider also that in the context of an asset deal, following the closing a purchaser would not be bound by any cease and desist declarations or court orders binding on the target, as these “old” declarations and orders would remain with the target, notwithstanding the transfer of the entire business to a third party. In this context, using an asset deal structure would be beneficial for the purchaser.

INTELLECTUAL PROPERTY RIGHTS

An assessment of the target’s intellectual property should include a review of the trademarks, commercial designations and indications of geographical origin, designs, utility models, and patents relevant to the target’s business. That assessment should also include review and analysis of any pending or concluded disputes related to “passing off” (i.e., misrepresentation of a third party’s trademark). 

IMPACT OF REGULATORY LAWS

In the context of performing due diligence with respect to the target’s intellectual property rights, a purchaser must review the relevant trademarks and commercial designations not only with a view to the target’s ownership of, and right to use, those trademarks, but also under applicable food regulations and advertising laws. Of particular note, Regulation (EC) No 1924/2006 on nutrition and health claims (the “Health Claims Regulation”)¹  applies to all commercial communications, including trademarks, brand names or trade names that may be construed as nutrition or health claims. Such trademarks, brand names or trade names may be used without undergoing the specific authorization procedures provided for in the Health Claims Regulation if they are accompanied by a related nutrition or health claim in that labeling, presentation or advertising. Products bearing trademarks or brand names existing before January 1, 2005, may continue to be marketed until January 19, 2022.

In addition to reviewing the target’s trademarks and brand names, a purchaser’s due diligence review should also include an assessment of the labeling and advertising claims relevant to the target’s business. Any claim made on a food’s label, presentation or advertising must be clear, accurate and based on scientific evidence. Where reference to a nutrition or health claim is made, such reference must be authorized by and in compliance with the Health Claims Regulation. Note that in the case of botanicals, such authorization is not required; advertising for botanicals may include health claims if (1) the presence of the botanical substance has been shown to have a beneficial physiological effect, as established by generally accepted scientific data, and (2) the manufacturer is able to provide proof of such scientific evidence.

In addition to assessing the labeling and advertising of the target’s products, a purchaser must also duly assess the target’s (or its manufacturers’) manufacturing and production processes and evaluate the ingredients and formula used in such processes. Such review should include not only an evaluation of the target’s products in light of all applicable laws, but also relevant judgments and court orders.

LITIGATION/JUDGMENTS/SETTLEMENTS

Further, as in any M&A transaction, a purchaser should generally complete a thorough evaluation of the court orders, judgments and settlement agreements to which the target is subject, as well as any currently pending litigation. In the EU, unlike in other jurisdictions such as the United States, such orders and decisions are for the most part not publicly available. If the target is not able to provide documentation sufficient for a purchaser to assess any past litigation in which the target has been involved, it will be especially critical for a purchaser to include appropriate representations in the acquisition agreement in order to provide comfort with respect to past litigation. In addition, country-specific peculiarities must be taken into account. For example, in Germany, violations of law can be enforced in court not only by regulatory authorities, but also by private businesses competitive with the target; accordingly, the target could be subject to numerous preliminary injunctions even in the absence of orders imposed by regulatory authorities.