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B Corp, B Corp Certification, Purpose-driven

B Corp certification can impact on IPOs and Mergers & Acquisitions

By Mark Odegard

Consequences for IPOs and Mergers & Acquisitions

As noted previously, institutional investors are considering company commitments to environmental and social sustainability when making investment decisions and believe ESG programs are increasingly more valuable as hedges against economic downturns. And Matthew Weatherley-White of The Caprock Group believes the B Impact Assessment is an important tool in evaluating business practices and their overall value. Both points suggest that being a Benefit Corporation or Certified B Corp may have limited downsides in the context of IPOs and M&A activity, and they may have many upsides.

To support this notion, there are a few examples of Certified B Corps and/or Benefit Corporations that have gone public or been acquired. Laureate, a network of for-profit universities was the first Benefit Corporation to complete an IPO, followed by Lemonade, an insurance company. Both are also B Corps. Laureate raised $490 million in its IPO, which was underwritten by Credit Suisse, Morgan Stanley, and Barclays with private equity from multiple firms including Kohlberg Kravis Roberts & Co. L.P.

Vital Farms, another B Corp and Benefit Corporation, completed their IPO in mid-2020 and raised $200 million. Before the IPO, the Board of Directors was comprised mostly of impact investors. In a 2020 interview with Forbes, Vital Farms’ CEO Russell Diez-Canseco was asked how investors responded during their IPO roadshow. Diez-Canseco responded “I think the market embraced what we’re doing, because they did it with their eyes wide open. They wanted to invest in a company that actually behaved the way we were telling them we behaved and believed what we told them we believed.” Being a public Benefit Corporation and B Corp may have been a benefit for their IPO by providing transparency and validating Vital Farms’ descriptions of their business practices.

Certainly, we get the question, well, how are you going to keep doing the right thing when you’re subject to the pressures of being a public company, and short-termness? The reality is, we’re a B Corp and a public benefit corporation. So everybody who invested in us at the IPO and since knows that our board has a fiduciary responsibility to ensure that we are delivering on our commitments to all stakeholders, not just stockholders, and we may make choices on behalf of the company that do not maximize shareholder value.

Russell Diez-Canseco, CEO of Vital Farms

In relation to acquisitions, New Belgium Brewery, an employee-owned B Corp that brews beer, sold to Kirin Holdings in 2019. The press release noted that Kirin was “committed to protecting and nurturing New Belgium's unique identity, culture and brand”. According to Kim Jordan, New Belgium’s founder, Kirin is “supportive of both New Belgium's efforts to reduce its carbon footprint and remain a Certified B Corp.” Their status as an ESOP or B Corp did not have an impact on the sale, and more importantly Kirin has signaled they are committed to maintaining the business philosophy that Jordan created.

While four examples don’t constitute a trend, they do suggest a change in market and investor perceptions about the value of Benefit Corporations and B Corps. In all four instances, the companies appear to have benefited from these structures (or at least were not encumbered by them).

Just as importantly, these four companies have been able to retain their purpose-driven missions. There is debate, as already noted, about the enforceability of the benefit corporation legal structure post-acquisition, but the experience thus far reflects positively for preserving mission over the long-term. The legal structure and certification appear to be the current best way for companies to preserve the principles they were founded on, and to make money in the process.

Managing perceptions

As noted, there are downsides that need to be managed. Considering the Alcoa example and the notion of business judgement, a full commitment to the purpose-driven model may be the best way to mitigate risks. It may not be easy in the short-term but communicating the focus on purpose clearly and frequently and referencing examples of how purpose-driven businesses and Certified B Corporations experience greater growth and success will help persuade investors. Or at the very least serve to prove them wrong.

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