Advent International cancels $1.9 billion acquisition due to impact of COVID-19
Around this time, Forescout Technologies planned to pop champagne corks to celebrate the acquisition by Advent International. Instead, it’s going to court to compel Advent to move forward on the $1.9 billion deal, accusing the private equity firm of improperly canceling their agreement.
The Lowdown: Advent pulled out of the plan to take over Forescout earlier this week, saying the security compliance vendor failed to live up to revenue and performance standards established in their agreement. Forescout says the performance slump is due to the broad economic downturn resulting from the COVID-19 pandemic.
The Details: Forescout is asking the Delaware Court of Chancery, which has jurisdiction, to compel Advent to complete the acquisition. Advent acknowledges the tough market conditions, but says Forescout is underperforming in comparison to other similar companies.
As a result, it triggered the material adverse change clause in the agreement, which gives it the ability to cancel the deal if the financial value or performance of the acquisition target changes.
Forescout argues that the acquisition agreement excluded the pandemic and that Advent knew of the rough market conditions ahead of time when it entered the agreement in February.
The Impact: The pandemic is disrupting many acquisitions and buyout plans. Buyers are using their material adverse change clauses as cover to get out of deals as the recession-conditions have severely devalued acquisition targets.
Forescout, which has a market value of $1 billion, is trading lower as a result of the canceled buyout and lawsuit. Legal observers say a likely outcome is a settlement, in which Forescout could receive compensation for the failed deal.
In a statement, Advent said it was working with Forescout on an unspecified alternative arrangement to the acquisition before the lawsuit was filed.
Background: Forescout entered the buyout agreement with Advent in early Feburary. Forescout says it conducted extensive due diligence with Advent prior to entering the deal.
The Buzz: “We have satisfied all conditions to closing under our merger agreement, and a material adverse effect has not occurred,” said Theresia Gouw, chair of the Forescout board. “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.”
“I remain confident in the strength of Forescout and its incredible team,” said Michael DeCesare, CEO and president of Forescout. “Forescout is in a strong financial position, with $100 million of cash on hand as of March 31, 2020. We are well-positioned for success and the fundamentals of our business have not changed. Customers around the world trust Forescout to help solve their most pressing security challenges, and that’s exactly what we are doing.”