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May 20, 2020updated 21 May 2020 11:59am

Forescout, $57 Billion Private Equity Fund Clash After Buyout Collapses

"It is highly disappointing that Advent would attempt to exploit market volatility to renege on its contractual obligations"

By CBR Staff Writer

Operational Technology (OT) security specialist Forescout is suing a private equity firm for failing to “consummate” a planned buyout — slated for May 18

Boston-based Advent International had agreed in February to buy Forescout for $33 per share, in a cash deal that valued the security firm at $1.9 billion.

But the private equity firm, which has $57 billion in assets under management, has not closed the deal in the wake of business fallout from COVID-19.

Advent alleges that Forescout has “failed to operate in the ordinary course in several material respects since the signing of the Merger Agreement”.

Forescout today said it had filed a complaint with the Delaware Court of Chancery, alleging that Advent affiliates had “violated the terms of their merger agreement with Forescout” by failing to proceed.

Forescout said it is asking the Court to compel Advent to “immediately complete the pending acquisition of Forescout.”

It says the merger agreement had already “explicitly allocated the risk of any impacts from COVID-19 to Advent.”

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The deal is one of at least a dozen acquisitions cancelled since the coronavirus outbreak went global, according to Pitchbook data. Many have been blamed on “material adverse effect”, although deal terms are increasingly precluding parties from treating the pandemic as such an event.

Forescout Sues Private Equity Fund

Forescout said: “On May 15, 2020, Advent notified Forescout that it would not consummate the acquisition on May 18, 2020, as scheduled.

“Advent’s purported excuse for its wrongful conduct is that a closing condition to the transaction has not been satisfied because a ‘material adverse effect’ has occurred at Forescout. Forescout believes that no material adverse effect has occurred, that all closing conditions are satisfied, and that Advent is obligated to close the transaction. Forescout believes that Advent has relied on
meritless excuses to support its position.”

Theresia Gouw, Chair of the Forescout Board said: “The only change since the merger agreement was jointly executed in February is the deepening of the COVID-19 pandemic, which has significantly impacted global macro-economic conditions. All companies have been challenged by this pandemic, and it is highly disappointing that Advent would attempt to exploit market volatility to renege on its contractual obligations, particularly when the merger agreement explicitly excludes the effects of a pandemic as a material adverse event.”

Advent International said in February of the deal that “Forescout is an ideal partner for Advent — as it’s a mission-critical business positioned to capitalize on key tech megatrends”.

Today, it said in an emailed comment: “On May 15, Advent International notified Forescout Technologies that Forescout had not satisfied the closing conditions in the Merger Agreement, and as a result Advent would not be proceeding to consummate the merger on May 18.

“Advent reached this conclusion after an extensive analysis that included information provided by Forescout, the company’s first quarter 2020 financial results and a detailed forecasting exercise to better understand future performance. Advent’s analysis, which was shared with Forescout, established that the company has experienced a material adverse effect on its business, financial condition and operational results.

“In addition, there has been a disproportionate effect on the company’s business relative to its direct peers, most of which have reported strong financial performance in the current environment.

The private equity firm added: “Advent has informed Forescout of its belief that the company will lack the ability to meet its financial obligations as they become due based on its expected post-closing financial condition. Further, we believe the company has failed to operate in the ordinary course in several material respects since the signing of the Merger Agreement.

The firm said it is “disappointed” that Forescout has chosen to pursue litigation and said it will “vigorously defend its position in court.”

See also: “A Sweetheart Deal, Done in Secret”: Intel and Micron Sued Over 3D XPoint

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