Cybersecurity Company Sues Private Equity Firm for Backing Out of Buyout

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Cybersecurity firm Forescout Technologies Inc. yesterday sued a private equity firm for backing out of a $1.9bn buyout.

Advent International Corporation agreed to buy Forescout back in February 2020, but four days before the takeover was due to be completed, the firm announced it would no longer be closing the deal. 

According to California company Forescout, Advent said it was reneging on the deal because of the impact of the global outbreak of COVID-19. 

The takeover had been scheduled to go ahead on Monday, May 18. On May 20, Forescout filed a lawsuit in the Delaware Court of Chancery requesting that Advent be ordered to complete the buyout.

In a statement released yesterday, Forescout accused Advent of violating the terms of their merger agreement.

A spokesperson for the aggrieved cybersecurity company said: "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."

The cybersecurity company said that the effects of COVID-19 had been factored into negotiations and that Advent "has relied on meritless excuses" to wriggle out of the deal.

"The merger agreement explicitly allocated the risk of any impacts from COVID-19 to Advent," said Forescout.

Theresia Gouw, chair of the Forescout board, described Advent's getting cold feet over the planned buyout as highly disappointing. 

“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," said Gouw. 

"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."

The surprising turn of events sent Forescout's shares tumbling to an all-time low yesterday. Shares were at just $18.33 when trading opened. Advent International agreed on February 6 to pay $33 a share to take Forescout private.

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