Charm Offensive

Before Spin Master could buy Toca Boca, it needed the blessing of its creative talent
Toca Boca, a Swedish developer of children’s apps, had TV ambitions. So who better to buy the company out than the team at Spin Master, responsible for such hits as Paw Patrol? (Ask your kids.) One wrinkle, though. While the creative masters behind Toca were looking for a backer, it had to be one that shared their ethics — and, with a bidding war underway, they had options. Spin Master, however, was very convincing.



LEXPERT
: With this deal, Spin Master will be able to develop Toca Boca’s new TV division and create a whole franchise around their hugely popular apps for children. Is that the objective?
Chris Harrs (Executive VP and GC, Spin Master):
Our intention is to leave them alone. They have already embarked upon a full 360 approach to their brand by launching Toca TV and initiating a merchandising program that will launch next spring in North America. Wherever Spin Master can lend a helping hand with its retail expertise, it will.

LEXPERT: I would have expected you to leverage your experience with hit kids’ shows, like Paw Patrol and Bakugan.
Harrs:
Spin Master’s experience in the animation space is quite unrelated and likely will not be tied to Toca TV. Toca TV is really about aggregating original and curated animated and live content from the internet into a safe environment that appeals to kids from ages three to nine.

LEXPERT: Toca Boca is a Swedish outfit, but it actually first set up shop in Canada in 2013 with its acquisition of Toronto-based Sago Mini. Is that the transaction that first caught Spin Master’s eye?
Harrs:
Spin Master has admired Toca Boca for some time. ... Most of the highest-grossing kids’ apps relate to licensed content, so apps based on TV shows or movies generally attract the most users. For Toca Boca to build so many successful apps without the association of an entertainment property or advertising is truly impressive.

LEXPERT: So how did the deal start?
Harrs:
Toca Boca was owned by the Swedish publishing giant, Bonnier Group. Toca Boca happened quite accidentally for them and grew out of their R&D department. It was really outside Bonnier’s core business.
Mathias Berggren, DLA Piper Sweden KB (for Bonnier Group): Bonnier was, of course, very proud of the development and growth of Toca Boca, and much of its success was directly attributable to its employees.

LEXPERT: Those employees seem to have been guided by a principled approach to app development — no in-app purchases, for example, and gender-neutrality. Were there many meetings to ensure that the company cultures would mesh?
Berggren:
The corporate culture of the acquirer was very important for Bonnier.
Harrs: We wanted to make sure that these people were committed to staying post-closing and understood clearly that Spin Master believed in the Toca vision and would be supportive.
Berggren: There were many meetings between the executive teams of Bonnier Media and Spin Master, as well as Toca Boca, to get comfortable that the fit was there and that this acquisition would work well for Toca Boca’s executives and employees.

LEXPERT: At what point were you satisfied that formal discussions could begin?
Harrs:
There were extensive discussions early on, but other entities were interested in acquiring Toca Boca. It was somewhat of a competitive situation and at one point in the process we ended up being dropped. However, our senior executives were very keen on this deal and flew to both Sweden and San Francisco on multiple occasions to convince the owners and the Toca Boca senior executive that Spin Master was serious and that we would be the ideal new owner.

LEXPERT: So you found yourself in the middle of a bidding war?
Harrs:
The Bonnier Group was courting other bidders and from the time Spin Master was let back into the process, it was six weeks until close. The driving force behind wanting to get the deal done was one of Spin Master’s founders and Co-CEO Ronnen Harary, and he drove a relentless pace requiring update meetings every day and towards the end, getting all sides together to hash out final points.

LEXPERT: Were lawyers required during this feeling-out stage?
Berggren:
Once we determined that the strategy and corporate cultures appeared to be aligned and we were able to reach the same ballpark on price, we moved very quickly on the deal.  Lawyers were involved fairly early on in the deal to try to help preparations for the sale process including diligence and the purchase agreement.  Given the international nature of the deal, Bonnier decided to retain DLA Piper, being a long-term client of the firm in Sweden but a new client to the Canadian practice. This provided us with a central contact in Stockholm to manage the legal side of the transaction in a fairly seamless manner working closely with the team in Toronto.

LEXPERT: What was the focus of negotiations? Was it just price, or were other elements just as important?
Jeffrey Cohen (Torkin Manes LLP, for Spin Master):
The focus was related to price, structure and the vendors’ comfort with respect to making representations and warranties in a manner typical of a North American transaction. With three targets in three jurisdictions – Canada, US and Sweden – tax structure was also a significant focus throughout.
Berggren: Bonnier Group was also concerned with finding a purchaser that was well positioned to successfully complete the transaction in a timely manner, including a purchaser with sufficient available financing, few regulatory- or governmental approval-related issues.

LEXPERT: What were the biggest challenges to getting this deal done?
Harrs:
The biggest challenge was for us to understand their business model. The value in a company like Toca Boca is in their creative talent and also in the number of unique visitors and users, and the number of downloads. It was something new for us to conduct due diligence around this. Also Toca TV was a big investment for Toca, so it was difficult at first to understand the business model for that initiative.
Vaughn MacLellan, DLA Piper (Canada) LLP (for Bonnier Group): From a legal perspective, the biggest challenge faced in getting the deal done was simply working across multiple jurisdictions … in an extremely aggressive period of time.
Glen Eddie (Torkin Manes LLP, for Spin Master): This transaction involved the acquisition of three separate corporate entities – Sago Sago, Toca Boca Sweden, and Toca Boca US – operating in Europe, North America and Asia, all of which were essential and integral to the continued operation of the Toca Boca business.  Completing due diligence while drafting and negotiating a purchase agreement to reflect such due diligence in real time was a challenge.
Eddie: This required excellent collaboration among the parties involved and coordination among legal counsel in each of the jurisdictions, including among DLA’s Stockholm and Toronto offices.

LEXPERT: What would you say was most memorable about this deal? And what can we expect to see from Toca Boca?
Cohen:
The takeaway for us will be how the buyer team was able to swiftly get up to speed on this business and get the deal completed in the quick time frame required by both parties.
MacLellan: Yes, the pace at which the transaction was consummated and the ease with which the parties were able to navigate jurisdictional issues through the coordinated efforts of counsel.
Harrs: It was amazing that we could bring the whole thing together in such a short period of time. Our hope and expectation is that Toca can continue their strong position in the kids’ app space while simultaneously building their brand through Toca TV and their merchandising initiatives.

(For a summary and full list of legal advisors, visit lexpert.ca.)