Advent Acquisition Of Forescout Back On, Price Cut By $4 Per Share

The $29-per-share deal comes just five days before the scheduled start of a Delaware Court of Chancery trial over Advent International’s attempt to walk away from the Forescout acquisition back in May.

Advent International and Forescout have called off their dueling lawsuits and agreed to move forward with an acquisition for $4 per share less than the deal initially proposed in February.

The Boston-based private equity firm will buy San Jose, Calif.-based cybersecurity vendor Forescout for $29 per share, down from the purchase price of $33 per share, or $1.9 billion, agreed to five months earlier. The deal comes just five days before the scheduled start of a Delaware Court of Chancery trial between Forescout and Advent over Advent’s attempt to walk away from the deal.

“We believe revising the terms of the previously announced transaction is the best path forward for Forescout because it removes the significant ongoing distraction of the pending litigation and delivers immediate and certain value to Forescout’s shareholders,” Theresia Gouw, chair of Forescout’s board of directors, said in a statement.

[Related: Merlin: Forescout Channel Stuffing Allegations Are ‘Entirely False’]

Forescout’s stock surged $3.85 (15.38 percent) to $28.88 per share in trading Wednesday morning. The company’s stock had bottomed out on May 20 at $19.84 per share after Forescout indicated that it was taking Advent to court. Advent subsequently countersued. The amended acquisition agreement between Advent and Forescout was announced before the market opened Wednesday.

The deal will inject much of Symantec’s former brain trust into Forescout thanks to Advent teaming up with private equity team Crosspoint Capital Partners as an adviser. Nicholas Noviello, who served as Symantec’s CFO from December 2016 to January 2019, will take over as Forescout’s chief operating officer, while Greg Clark, Symantec’s CEO from August 2016 to May 2019, will join Forescout’s board of directors.

“As a private company and with the resources, expertise and support of Advent and Crosspoint Capital Partners, we will remain committed to helping customers solve their most pressing security challenges while applying greater focus to our strategic cloud transformation and our transition to a recurring subscription business model,” Forescout CEO Michael DeCesare said in a statement.

Two events over the past week may have brought the two sides closer to a deal. First, Forescout reported on July 8 that revenue for the quarter ended June 30 was expected to come in between $78 million and $82 million, well above Seeking Alpha’s consensus estimate of $70.4 million.

Then on July 10, Advent’s lawyer asked the Delaware Court of Chancery to adjourn the July 20 trial because the original lenders for the Forescout deal had terminated their debt commitment. Advent said it had contacted alternate lenders with no luck and was willing to agree to an extension on the deal termination date. Forescout objected to Advent’s motion the very day it was filed.

“The fundamental strengths that first attracted Advent to Forescout—its differentiated technology, record of innovation, talented employee base and relentless focus on its customers—continue to make this business a compelling platform and critical player in the cybersecurity ecosystem,” Bryan Taylor, head of Advent’s technology investment team, said in a statement.

The rupture first began May 15 when Advent told Forescout that it wouldn’t be closing the acquisition three days later as had been scheduled. Advent’s attempt to walk away came a week after Forescout announced revenue for the quarter ended March 31 had fallen 24 percent on a year-over-year basis to $57.2 million due to the impact of COVID-19 on large-size deals and new perpetual licenses.

Then on May 20, Forescout sued Advent in Delaware Court of Chancery for allegedly violating the terms of the acquisition agreement by claiming that a “material adverse effect” had occurred at Forescout. Forescout argued that the acquisition agreement called out the risk of any impacts from the coronavirus pandemic, and that Advent was therefore obligated to close the transaction as scheduled.

Advent took a different view, arguing that Forescout experienced a disproportionate effect on its business relative to its direct peers, most of which reported strong financial performance in the current COVID-19 environment. Advent alleged that Forescout would lack the ability to meet its financial obligations as they became due based on its expected post-closing financial condition.

During the legal proceedings, Advent subpoenaed Merlin International, No. 129 on the 2020 CRN Solution Provider 500, after a whistleblower email accused Merlin of engaging in a “channel stuffing scheme” with Forescout. Advent said a May 5 email from [email protected] alleged that Forescout involved Merlin in the scheme during the fourth quarter of 2019.

Forescout said the whistleblower’s allegation was without merit, and related to an ordinary course transaction for which Forescout had been paid in full. Merlin said the allegations made by the whistleblower about its agreement with Forescout are “entirely false,” and said it was disappointed that its name and reputation had been unfairly dragged into the legal fight between Advent and Forescout.