Natural Products Insider

MAR-APR 2018

INSIDER is the leading information source for marketers, manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Since 1997, INSIDER has been serving the needs of the global nutrition industry.

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62 INSIDER March/April 2018 Merger and acquisition (M&A) activity in the food and beverage industry is increasing at a steady pace. However, while acquisition and fi nancing deals rise, so do class-action lawsuits and demand letters from the members of the plaintiffs' bar looking to cash in under the guise of consumer protection. In many M&A deals, acquiring companies are private equity fi rms with little to no experience in the food and beverage industry or multinational corporations looking to shift the burden on the sellers through carefully crafted acquisition agreements. The agreements almost always contain holdback clauses that set aside a signifi cant amount of funds for a lengthy time to insulate the buyer. As a seller, the goal is to include as many disclosures as possible so that the buyer assumes the risk with respect to those disclosures at the time of purchase. As a buyer, the goal is to seek the broadest form of indemnifi cation possible. As a seller unfamiliar with the intricacies of food and beverage regulations, the question becomes, "What documentation do you ask for to develop the level of comfort needed to complete a transaction?" Whether you sell a dietary supplement or a packaged food, there are myriad manufacturing- and processing- related documentation requirements set forth in both title 21 part 111 and part 117 of the Code of Federal Regulations (CFR). Additionally, a false advertising action is almost sure to affect a company's bottom line, and therefore review of advertising and possible issues related to advertising compliance is paramount. The following non-exhaustive list can help provide a snapshot of the seller's business as it relates to regulatory and advertising compliance: State, federal and local government or regulatory agency permits, licenses, approvals, consents, special arrangements or agreements that pertain to the business of the company; Documentation of inspections of the business by any regulatory agency, including local, state and federal, and documentation relating to audits completed by third parties; Documentation of pending or threatened challenges, audits or recertifi cations relating to the company's business practices, including notices of defi ciencies or administrative complaints, actions or reports; Documentation of consumer complaints, including complaints of safety concerns; Documentation of agreements with the company's supplier(s), including but not limited to quality agreements, supply or manufacturing agreements, and/or indemnifi cation agreements; Documentation regarding quality control (QC) and GMPs (good manufacturing practices) at the company's facilities, including but not limited to standard operating procedures (SOPs), facility maintenance and monitoring records, product complaint records and other documentation required to be kept by the company pursuant to title 21 CFR part 111 or 21 CFR part 117; Documentation regarding training of pertinent company personnel, including but not limited to facility and/ or QC personnel on FDA, USDA and/ or FTC regulations pertaining to the company's business; Documentation regarding the company's supplier monitoring and compliance program, or if no such program exists, the company's procedures and policies for compliance monitoring of suppliers—including monitoring of claim compliance with respect to claims such as "all natural," "no artifi cial sweeteners," "non GMO," "healthy," etc., or procedures for the inspection of supplier facilities; Documentation regarding company advertisements and brochures, including company information provided to prospective suppliers of the company and documentation provided to retail customers of the company, and substantiation for any advertising claims; and Documentation regarding advertising inquiries or challenges concerning the company's advertising claims by any regulatory agency (state, local or federal) or any third-party advertising claim including but not limited to class actions, or inquiries initiated by the National Advertising Division (NAD) or similar third-party advertising forum. Along with reviewing the above documentation, buyers should consider engaging subject matter experts and regulatory counsel to assess overall compliance. While plantiffs' lawyers rarely engage on the merits of a case after sending a demand letter, and instead waive the cost of defense argument in attempts to resolve quickly and privately, it is still important to engage in the due diligence process and understand potential exposure and risks related to a prospective purchase. On the seller's end, a thorough and complete data room that anticipates all the above documentation requests makes for a smoother transaction. Often, engaging regulatory counsel and subject matter experts prior to a potential transaction helps manage a buyer's expectations and concerns with respect to regulatory exposure. Monumental acquisition and fi nancing deals closed in 2017, and this trend isn't slowing in 2018. However, a thorough, informed, due diligence review can be the necessary anecdote to a plaintiffs' attorney cashing in on years of a company's hard work. Do it right. Due Diligence. Abhishek Gurnani is a partner at Amin Talati Upadhye (amintalati.com). Gurnani represents a wide variety of health and wellness-focused companies addressing issues such as quality control (QC), recalls, government investigations and class-action lawsuits, as well as dealing with matters before FDA, FTC, U.S. Customs and USDA. Mergers and Acquisitions Don't Let the Plantiffs' Bar Acquire Your Cash in an M&A Deal by Abhishek K. Gurnani

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