Founding shareholders in Paraparaumu brewer Tuatara Brewing failed in their claim for $920,000 from private equity investor Rangatira Ltd after Tuatara was onsold to DB Breweries in 2017 for more than $12 million dollars.
Shareholders, annoyed they had missed out on an ‘earn-out’ fee from Rangatira because changes to accounting rules for inventory dented profits, failed in their argument Rangatira had to pony up more for its initial purchase when exiting.
The High Court was told of detailed negotiations in 2013 between Rangatira and Tuatara Brewing Ltd, spearheaded by Tuatara’s majority shareholders Sean Murrie and Carl Vasta. Price was the sticking point. Tuatara shareholders valued their business at $16.6 million, the price offered by an unnamed large industry player. Tuatara felt a trade sale would damage its brand. Rangatira could offer governance expertise for the growing business, but $16 million was out of the ballpark. Tuatara was worth no more than ten million, it said. A deal was struck notionally valuing Tuatara at $12 million. Rangatira paid $3.5 million for a 35 per cent stake in Tuatara with $2.7 million of that going to founding shareholders. More was payable if specified EBITDA hurdles were met. These hurdles were not achieved, because of unfavourable changes to accounting rules shareholders complained. When DB purchased in 2017, the founding shareholders went back to Rangatira Ltd saying the original deal required a top-up of $920,000 since the business was sold for more than twelve million dollars. This qualified as an ‘exit event’ in the 2013 deal, they said. Justice Churchman disagreed. Extra payment for an ‘exit event’ exceeding $12 million was time-limited, expiring in December 2015. The 2013 deal with Rangatira was premised on the proviso that if Tuatara was worth $12 million as the founding shareholders claimed than they would earn extra over and above the ten million buy-in valuation by jumping the ‘earn-out’ hurdles, or alternatively another buyer would prove them right by buying in for more than twelve million dollars – in which case Rangatira would pay $920,000 as the agreed difference between the price it paid and recognised value. An ‘exit event’ after December 2015, years down the track, did not qualify.
The Malthouse Ltd v. Rangatira Ltd – High Court (27.04.18)
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