Mergers & Antitrust Law News

Advent Countersues Forescout, Asking Out of $1.9 Billion Deal

June 8, 2020, 7:10 PM

Advent International Corp. countersued Forescout Technologies Inc. in Delaware Monday, six weeks before a YouTube trial over the breakdown of their $1.9 billion take-private buyout, saying the deal’s collapse can’t be blamed on the coronavirus alone.

“Because Forescout’s precarious finances would leave it insolvent upon closing of the proposed transactions, buyers cannot in good faith certify the solvency of the post-closing entity—which is a condition to close the $400 million term loan financing,” the Chancery Court filing says.

Forescout’s lawsuit against Advent, filed about two weeks ago, is part of a wave of suits asking courts to keep mergers on track as acquirers balking at the coronavirus scramble deals worldwide. Most of those disputes are being heard in the Chancery Court.

Some of the similar cases involve a $5.8 billion hotel deal; the purchase of Victoria’s Secret; a business unit sale from Bed Bath & Beyond to 1-800-Flowers; a franchise buyout by CorePower Yoga; a CMX Cinemas merger; and a private equity transaction over the world’s top cake decorations wholesaler.

According to Forescout’s complaint, an Advent representative told its CEO as they sought to renegotiate the transaction that “the Covid-19 outbreak caused a change of heart.”

But the merger agreement, executed after Covid-19 was declared a global emergency, “specifically allocated the risk of any” pandemic to Advent by excluding the coronavirus from its “material adverse effect” clause, the suit says.

‘A Desperate Attempt’

Advent fired back at those claims in its first filing last week, saying Forescout’s suit mischaracterizes the deal’s MAE provision.

Although the clause excludes “pandemics,” it carves out those with an “incremental disproportionate impact” on Forescout, meaning outbreaks that hit it harder than its peers, the filing argued.

“Forescout’s financial performance and prospects have fallen off a cliff,” while its competitors “are largely thriving,” the private equity group said.

It hit the cybersecurity company with counterclaims a few days later, seeking a court order declaring that there’s been a MAE, that specific performance isn’t available, and that it was justified in reneging over Forescout’s failure to operate “in the ordinary course of business” since the pandemic struck.

“Its decision instead to offer extraordinary and short-sighted discounts to customers in a desperate attempt to prop the company up until closing” represents a major departure, the countersuit says.

Online Trial in Late July

Meanwhile, Vice Chancellor Sam Glasscock III agreed May 28 to fast-track the case, scheduling a 5.5-day trial for the week of July 20. Forescout had requested a two-day trial this month.

Because of coronavirus restrictions, the trial will be streamed on YouTube, the judge revealed in a June 4 docket order.

The arguments previewed in Forescout’s complaint and Advent’s countersuit echo those being made in the other similar disputes.

The outcome in each case will likely hinge in part on the specifics of the merger’s MAE clause, including whether it excludes the pandemic and whether the reneging party can show the deal has been disproportionately affected by it, relative to the broader economy.

Advent is represented by Morris, Nichols, Arsht & Tunnell LLP, Ropes & Gray LLP, and Quinn Emanuel Urquhart & Sullivan LLP. Forescout is represented by Wilson Sonsini Goodrich & Rosati PC.

The case is Forescout Techs. Inc. v. Ferrari Grp. Holdings LP, Del. Ch., No. 2020-0385, answer and counterclaims filed 6/8/20.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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