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CorePower Yoga Lawsuit One to Watch for Failed M&A Deals During COVID-19


Chris Kenny, the owner of 34 CorePower Yoga franchise locations, filed a lawsuit April 3 against the brand’s owner, which allegedly used the pandemic to back out of a $23 million deal to acquire Kenny’s yoga studios.

“Defendants just want out of the obligation to buy plaintiff’s 34 yoga studios because COVID-19 and the government responses to it, including the temporary closure of businesses like yoga studios, have changed the economics of the deal,” the suit says.

CorePower was to pay $6.3 million for eight Colorado locations owned by Level 4 Yoga by April 1 in the first stage of a three-part deal, according to the complaint filed to the Delaware Chancery Court. The remaining studios and money were set to close as part of the deal in July and October. The staggered nature of the transaction was allegedly negotiated for the benefit of CorePower, which agreed in return that it, “not plaintiff, would assume any market and industry-wide risk associated with the delayed closing,” the suit says.

“There are provisions in agreements that allow buyers to walk away from transactions if certain agreements aren’t met. If something really bad happens, it’s a grey area as to whether this pandemic falls within that, and that’s what this litigation will be about,” said Mark Williamson, an M&A attorney at Lathrop GPM not associated with this case.

The key factor will be if the court determines that COVID-19 qualifies as a material adverse effect, which is a change in circumstances that significantly reduces the value of a company. This clause appears in most purchase agreements, Williamson said, and has historically been held to a very narrow standard and been difficult for buyers to prove.

Under Delaware law, corporate M&As are presumed to be “part of a long-term strategy,” which means that in order for a material adverse event to justify cancelling a deal, the event needs to be “consequential to the company’s earnings power” over a period of “years rather than months,” the suit says.

“It’s an extremely unusual situation to allow people to walk away from a contract. That’s where this pandemic will test boundaries,” Williamson said. “How bad does it have to get for a party to be able to walk away? Based on what Delaware has done historically, it’s going to continue to be a hard standard to meet.”

Broader M&A trends during COVID-19

Williamson and his colleagues at Lathrop GPM are starting to see early litigations swell from failed deals from COVID-19. But mainly, they’re seeing a lot of renegotiations where buyers still want to move forward, just not on the same terms as before.

“It’s going to be an uphill battle for buyers trying to get out of signed contracts,” Williamson said. “There are a couple cases filed that will test some of the law on getting out of signed merger agreements.”

Outcomes will depend on where the deal was at in the process prior to the pandemic. If there wasn’t a signed purchase agreement yet, it will most likely end in a renegotiation, Williamson said. If a purchase agreement was signed already, either both parties will agree to walk, or there will most likely be a litigation.

“Some deals kept going, if they were far enough along,” Williamson, pictured, said. Examples of such deals appear in our M&A Dealmaker newsletter this month.

“What we’re seeing now is, I don’t know if it’s anxiety, but just uncertainty in the market. Businesses that were otherwise doing M&As are now focused on internal issues such as getting PPP loans, layoffs, the health of their employees—all things important for their business—but they’ve shifted their attention from focusing on growth and M&A deals to getting their credit up, saving cash, and other things helpful for the long-term survival of the brand.”

Other deals have seemingly taken a pause until some level of certainty is back, while some have simply slowed.

“It’s not as dire as we all were expecting it to be in terms of a complete drop off of M&A,” Williamson said. “There’s still some deals going, and I’m pretty confident in the not-too-distant future, we’re going to see a huge increase.”

Kenny did not respond to a request for comment. Kenny’s attorney, Lisa Schmidt of Richards, Layton & Finger, said that she was not able to comment on the current litigation. CorePower Yoga CEO Niki Leondakis declined to comment.

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The latest news, opinions and commentary on what's happening in the franchise arena that could affect your business.

Laura MichaelsLaura Michaels is editor of Franchise Times. She can be reached at 612.767.3210, or send story ideas to lmichaels@franchisetimes.com.
Beth EwenBeth Ewen is senior editor of Franchise Times. She can be reached at 612.767.3212, or send story ideas to bewen@franchisetimes.com.
Nicholas UptonNicholas Upton is restaurants editor at Franchise Times. He can be reached at 612.767.3226, or send story ideas to nupton@franchisetimes.com.
Mary Jo LarsonMary Jo Larson is the publisher of Franchise Times Magazine and the Restaurant Finance Monitor.  You can find her on Twitter at




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