Busted-Deals Docket Grows With Forescout Suit Against Advent (1)

Private equity group Advent International Corp. can’t rely on fallout from the pandemic to cancel a $1.9 billion acquisition of Forescout Technologies Inc., the cybersecurity company said in a lawsuit, adding to the pile of broken deals in Delaware Chancery Court.

Forescout argues the purchase agreement specifically bars Advent from citing the coronavirus as creating a “material adverse effect” that excuses the investment fund from finalizing the deal. Advent executives “expressly agreed to bear the risk of adverse impacts on the company from a pandemic,” Forescout’s lawyers said in the complaint, filed Tuesday.

The San Jose, California-based security company said in the suit it was proceeding “diligently” with the transaction and that it expected to have a “strong” second quarter. “We have satisfied all conditions to closing under our merger agreement,” Theresia Gouw, chair of Forescout’s board of directors, said in a statement Wednesday.

In February, Boston-based Advent agreed to pay $33 a share for Forescout. It notified Forescout earlier this month that it was putting the buyout on hold over the effects of the pandemic.

Disputes over the impact of the virus have sent at least nine busted-deal cases to Delaware’s business court, the premier venue for resolving high-dollar corporate scraps. During one seven-day period in early May, more than $10 billion of mergers, acquisitions and investments were terminated, according to data compiled by Bloomberg, with more under threat as acquirers try to back out of agreements or renegotiate terms.

“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,” Kerry Golds, an Advent spokeswoman, said in a statement. She added Forescout “has failed to operate in the ordinary course in several material respects since the signing of the merger agreement.”

Advent “had been engaged in ongoing discussions with Forescout about an alternative transaction, and we are disappointed the company has now chosen to pursue litigation,” Golds said. “Advent is prepared to respond and will vigorously defend its position in court.”

Forescout’s lawyers are asking a Delaware judge to put the case on the fast track for a June trial to ensure they can meet a financing deadline, according to a court filing separate from the complaint. With the state’s courts closed until June 13 due to the coronavirus, Forescout’s attorneys said getting a hearing so quickly may not be realistic.

As an alternative, “Forescout requests a prompt trial before the end of 2020” and is seeking the judge to issue an order barring Advent from nixing the deal in the meantime, according to the filing. With out such an order, Advent “may succeed in using the roadblocks to the merger it invented to avoid its contractual obligations,” Forescout’s lawyers said.

The case is Forescout Technologies Inc. v. Ferrari Group Holdings LP, 2020-0385, Delaware Chancery Court (Wilmington).

(Updates with request to put case on fast track in eighth paragraph)

--With assistance from Chakradhar Adusumilli.

To contact the reporters on this story:
Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net;
Joshua Fineman in New York at jfineman@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Peter Jeffrey, Peter Blumberg

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