Reed Smith Client Alerts

In Snow Phipps Group, LLC v. KCake Acquisition, Inc.,1 the Delaware Court of Chancery ordered Kohlberg & Co., LLC (Kohlberg) to acquire DecoPac Holdings Inc. (DecoPac), a cake decoration supplier, for $550 million. Although some of this opinion affirms prior Delaware case law, the opinion is notable because newly sworn-in Chancellor McCormick noted that she “chalked up a victory for deal certainty” by granting DecoPac’s request to force Kohlberg to acquire DecoPac despite conditions precedent that remained unfulfilled.


On March 6, 2020, days before much of the United States (and many other countries) began locking down in response to the global coronavirus pandemic, Kohlberg entered into (i) a stock purchase agreement (SPA) and (ii) a debt commitment letter (DCL) with DecoPac and Snow Phipps Group, LLC, the private equity representative of the sellers, agreeing to acquire DecoPac. Under the terms of the SPA, Kohlberg agreed to use reasonable best efforts to finance the acquisition on the terms of the DCL and to seek alternative financing if funding under the DCL became unavailable.

Shortly thereafter, DecoPac’s revenues declined significantly as a result of COVID-19 and related stay-at-home mandates. In response, Kohlberg requested more favorable financing terms from its lenders, including debt financing. The lenders rejected the request, but affirmed their commitment to fund the acquisition pursuant to the agreed terms of the DCL.

On April 5, 2020, Kohlberg advised DecoPac that debt financing and alternative financing were unavailable, that a material adverse event was expected to occur as a result of the COVID-19 pandemic, and that Kohlberg’s counsel suspected that DecoPac had breached its obligation to operate its business in the ordinary course after signing the SPA. DecoPac responded that it was in a position to proceed with the closing, but Kohlberg refused.

On April 14, 2020, DecoPac filed suit against Kohlberg seeking to force Kohlberg to specifically perform its obligation to close the transaction under the terms of the SPA. DecoPac filed an amended complaint on May 5, 2020, asserting that Kohlberg had (i) breached its obligations under the SPA to use “reasonable best efforts” to secure financing, (ii) breached the implied covenant of good faith and fair dealing relating to the DCL, and (iii) breached its obligations under the equity commitment letter that it delivered concurrently with signing. The amended complaint sought specific performance of the SPA.


The Court of Chancery observed that, under the terms of the SPA, DecoPac’s ability to pursue specific performance was available “if and only if…the full proceeds of the Debt Financing have been funded to Buyer on the terms set forth in the [DCL] to fund the payment of the Estimated Closing Payment at Closing (or would be funded at the Closing if the equity financing is substantially contemporaneously funded at the Closing).” Kohlberg argued that a specific performance remedy should not be available to DecoPac because “it is undisputed that the full proceeds of the Debt Financing were not funded,” and thus, the condition precedent to granting of specific performance had not been satisfied.