What’s the deal?

Inspirit Capital’s carve-out acquisition of the cruelty-free skin and body care brand, This Works, from Canopy Growth Corporation. Canopy is a Canadian-listed business specialising in CBD, and it acquired This Works in 2019 from consumer brand specialist PE fund Tengram. It was a £9.3m transaction, with £2.7m upfront cash consideration, a loan note issued by Inspirit and conditional earn-out. 

How were you introduced to the deal?

Inspirit Capital is a UK PE fund specialising in corporate carve-outs. We have a longstanding relationship with Inspirit, with our debt advisory team recently advising it on the financing for the carve-out of Aquest from Capita, and the acquisition of Spaldings. Inspirit reached out to us after being made aware of Canopy’s intent to sell This Works. First, we were asked for high-level advice about the state of the market and our opinion on This Works and its management team. I had looked at the business before it was sold to Canopy and knew Anna Persaud, its longstanding CEO. In my view, it was in the right space with a strong and experienced management team, so I advised Inspirit to consider bidding for it and we were asked to carry out a more detailed review.

What were the timescales?

The Information Memorandum announcing Canopy’s intention to sell was sent out in June 2023, with initial bids due in August. Once Inspirit reached the final stage of the process and was granted exclusivity in October, we were engaged. We helped complete some specific aspects of commercial due diligence and develop an exit paper, helping Inspirit with its strategy for the asset. The deal completed just before Christmas, so it all took just under six months.

Who were the advisers?

We provided corporate finance advice to Inspirit; Freeths carried out legal due diligence and Jacksonbreen IT due diligence. European Valuations was the collateral agent and Close Brothers the debt provider. Canopy’s lead adviser was US investment bank Jefferies; Goodwin provided Canopy’s legal advice.

What were the challenges?

This was Inspirit’s first investment move into beauty and wellness. It needed time to fully understand the market dynamics, the business specifics and its plans. That can be difficult when also trying to develop a successful relationship with management and understand their growth plan. The fact that I brought the specialisation was key.

Once Canopy decided to dispose, the likelihood of a sale was high. Advisers with in-depth sector expertise are particularly important when PE is acquiring for the first time in a new and unfamiliar sector. Finding the balance between too much and too little due diligence is key. Enough due diligence is needed to ensure they safeguard their investment, but too many questions can give management cold feet about an investor. I was that trusted person between parties. 

Were any lessons learned?

The beauty and wellness space is becoming increasingly crowded. Competition can be fierce and the average consumer is discerning. Although the sector tends to display resilience in the face of market shocks, there is often a fine line between success and distress. So it’s more important than ever to complete appropriate due diligence before making an acquisition.