Key Points
- The purchase of a founder-led brand — particularly one created by a celebrity — entails unique risks for the buyer because the value of the business is inextricably tied to the founder’s identity, cultural relevance, relationships and continued engagement.
- An array of deal structures has evolved for these kinds of transactions, including earn-outs, equity rollovers and hybrid investment-plus-commercial-partnership arrangements designed to align the buyer’s and the founder’s interests.
- Earn-outs can account for a significant share of the total acquisition price, but they are inherently litigation-prone once operational control shifts to the buyer. Minority investments paired with commercial agreements offer a lower-risk alternative.
- Where brand value rests on the founder’s name, image, likeness or story, buyers must confirm that the target holds sufficient persona rights for both current operations and anticipated future uses. Often, this may require negotiating a persona license in parallel with other founder-related restrictive covenants.
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Against the backdrop of a booming creator economy, founder-led brands — and, in particular, those founded by celebrities — have become a mainstream feature of the consumer landscape. Many of these businesses become attractive acquisition targets in remarkably short time frames because of their rapid growth and market positioning.
However, these ventures come with a distinct risk profile: Performance is inextricably linked to the identity, cultural relevance and continued focus of the founder. Where the founder has considerable industry ties, how well the business does is often also connected to the founder’s relationships.
Such dependency means founder-led brands can rise and fall quickly. Take, for instance, Logan Paul’s drinks company Prime Energy, whose U.K. sales of £112 million in 2023 declined 70% in 2024.
Often layered over this dynamic is a persona rights dimension, as founder-led brands are frequently intertwined with the founder’s name, image and likeness, or with the founder’s story. Prospective buyers of founder-led brands must therefore design transactions that capture and maintain the upside of the founder’s involvement while navigating the practical impacts of a sale transaction.
A few relevant considerations in founder-led brand acquisitions are highlighted below.
Deal Structuring Considerations
The central structuring challenge for a prospective buyer is aligning the brand’s and founder’s incentives, particularly where a founder will not remain in a full-time position.
To encourage the founder to stay actively invested in the continued economic success of the business post-transaction, prospective buyers should consider economic arrangements like earn-outs, equity rollovers and more bespoke arrangements such as investments paired with commercial partnerships.
These deal structures can supplement noncompete agreements that restrict a founder from launching or backing a competing venture, or governance mechanisms — like transitioning the founder to a board seat or a defined creative role to preserve the public association between the founder and brand.
Structuring a Traditional Acquisition: Earn-Outs and Equity Rollover
In a traditional acquisition, an earn-out structure — which conditions a portion of the purchase price on the achievement of post-closing performance milestones — is an intuitive solution. Even for prominent founder-led brands, earn-outs can account for a significant share of the total acquisition price. Examples include 20% in Hailey Bieber’s sale of her Rhode skincare brand and 30% in George Clooney’s sale of the Casamigos tequila brand.
Although three- to five-year earn-outs are most common, some deals, such as Casamigos, have featured earn-out periods extending as long as 10 years, reflecting a founder’s confidence in the brand’s long-term trajectory.
Careful drafting around performance metrics and operating covenants is essential. Even then, earn-outs remain ripe for litigation: Once the buyer controls day-to-day operations, the founder may argue that management’s decisions have undermined the metrics on which the payout depends, while the buyer insists it is exercising ordinary business judgment.
Rollover equity is an alternative less vulnerable to litigation. By requiring the founder to roll a significant portion of the founder’s sale proceeds into equity of the company, the founder’s economics remain tied to the performance of the business. Here, restricting the founder’s ability to transfer the remaining equity stake (as opposed to incentivizing a quick cash-out) is essential to helping encourage the founder’s continued engagement with the brand.
Where the founder has valuable industry ties, like distributor or manufacturing relationships, continued engagement can be especially important.
Alternative Structure: Minority Investment Plus Commercial Agreement
An alternative to traditional acquisition structures is a pairing of a minority investment with a commercial partnership. By leveraging existing capabilities that it brings to the table, such as distribution or manufacturing infrastructure, an investor can naturally integrate the target into its broader portfolio. This structure is a particularly attractive solution for a young brand: The investor gains early exposure to a founder-led business and can experience whether the business demonstrates long-term stability before pursuing a full acquisition.
Keurig Dr Pepper’s investment in Nutrabolt is a notable example: Along with a significant financial stake, Keurig Dr Pepper entered into a long-term sales-and-distribution relationship with Nutrabolt. As part of the transaction, Keurig Dr Pepper also locked in the ability to increase its ownership under certain capital-raising scenarios. This is a frequently used tool that enables an investor to preserve optionality while aligning both parties’ incentives toward growing the business.
Founder Persona Rights Considerations
Persona-related rights are carefully negotiated in deals where brand value rests in the founder’s association with the brand. Continued access to the founder’s name, image, likeness or founding story (more generally, the founder’s “persona”) can be essential to future success and consistent storytelling.
Equally important are carefully crafted restrictions on the founder’s use of their persona outside the business (whether that use is competitive or reputationally problematic).
A threshold question for prospective buyers is whether the target company holds sufficient rights to use the founder’s persona, both for the business’s operations and for the buyer’s anticipated future uses.
Key considerations include:
- The scope of use required in the business in the future, which may vary depending on whether the founder remains part of the company’s direction, or if the persona is embedded in the brand even without other founder involvement, as may be the case with an eponymous brand.
- What approval rights a founder should have over the company’s and buyer’s use of the persona.
- What persona-related uses the founder can make outside the business (e.g., in connection with other ventures or personal pursuits).
- The term of the company’s rights to the persona (whether perpetual or limited).
- What termination rights should be available to the company and the founder.
- What uses each party can make of the persona post-term.
Results of this assessment may inform the need for (and scope of) a persona license from the founder, or the ability to move away from use of the founder’s persona in the future, if desired.
Often, companies will need to enter into separate persona rights agreements with the founder (or include relevant provisions in employment or restrictive covenant agreements with the founder), as existing agreements between the company and founder are typically insufficient for a buyer to rely on.
Persona-related rights are negotiated closely with founder commitments (such as appearances and marketing obligations), noncompetes and other restrictive covenants, as well as termination-related provisions concerning the founder’s employment (including those triggered by reputational harm events).
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.