Freshly shareholders, including Insight Partners, sue Nestlé for 'failing to make earnout payments'

Former investors of food delivery startup Freshly are suing Nestlé USA, which acquired the company in 2020 for up to $1.5 billion.

The shareholders allege that Nestlé failed to make earnout payments to Freshly shareholders pursuant to the merger agreement, according to Per that agreement, as reported by TechCrunch at the time of the acquisition, Nestlé had agreed to pay $950 million plus potential earnouts of up to $550 million based on future growth.

Insight Partners, White Star, Highland Capital Partners, Slow Ventures and others were among those participating in the lawsuit as part of a group called Shareholder Representative Services LLC.

Bloomberg Law reported that the lawsuit, which is not publicly available, alleges that Nestlé pressured Freshly founder Michael Wystrach “to step down after the transaction – rather than admit he was being forced out – to avoid triggering nine-figure payments to the former shareholders.”

In late December, Freshly announced that it was halting its direct-to-consumer meal delivery business, according to Food Business News. The publication reported that “the meal delivery service suffered in 2021 as consumers began shifting their food spending back outside of the home. High inflation and economic uncertainty in 2022 also drove more shoppers to reduce their reliance on the subscription service.”

A source familiar with the suit who wished to remain anonymous told TechCrunch that over the last 18 months, Wystrach felt like he had “been stonewalled and that none of his budgets had gotten through.”

For its part, a spokesperson for Nestlé provided a statement to Bloomberg Law saying that: “Nestlé USA went well beyond its obligations to support the Freshly business following the acquisition, and the investors bringing forward the suit were fully compensated. We are confident the court will support our position."