Share purchase earn out

On 14 February 2007 the First Defendant ("Buyer") agreed to buy the entire shareholding of Acolyte Biomedica Limited ("Acolyte") under a Share Purchase Agreement ("the SPA"). The Claimants were some, but not all, of the shareholder vendors ("the vendors"), representing a total of 60.4% of the shareholding.

The consideration for the shares was ?10.4m in cash and an earn out payment based on net sales for the calendar year 2009. Acolyte's only commercial product, and the only one relevant to the claim, was BacLite MRSA, a diagnostic assay used for the purpose of detecting MRSA. In the event, the Acolyte business was not successful and it was terminated in December 2008. There were therefore no net sales in 2009.

The Claimants allege that the failure and termination of the business involved breaches of contract on the part of the Buyer and that the Claimants have lost their 60.4% share of the net sales which should have been achieved, which they claim would have been in the region of ?32m or US$56.45m.

The SPA contained a range of obligations for the Buyer to observe and perform to underpin the Claimant's expectation of earnout such as (extracts):

2. "(a) the Earn Out Products are actively marketed (a) in the United States, the European Union, Canada, and Australia (the "Major Markets") and (b) those countries where 3M has obtained regulatory approval to do so;
3. (b) (to the extent required) regulatory approval is diligently sought for the Earn Out Products in the Major Markets;
4. (c) the business selling the Earn Out Products is supported by resources from the following functional areas within the Purchaser's Group: Marketing, Communications, Information Technology, Technical Service, Legal, Tax and Accounting to a similar overall degree as such resources are made available to other businesses within 3M's Medical Division;"

The parties were in court for 22 days and judgement was given in favour of the Claimants. The total net sales that were not - but had the Buyer properly marketed would have been - achieved were calculated at US$2,152,000. The damages recoverable by the Claimants are 60.4% of that figure being US$1,299,808.

One of the problems for the Buyer was that the market moved away from the product and towards less expensive designs.

England and Wales High Court (Commercial Court) Decisions >> Porton Capital Technology Funds & Ors v 3M UK Holdings Ltd & Anor [2011] EWHC 2895 (Comm) (07 November 2011)

Go back

Subscribe to our RSS feed