Forescout sues Advent for calling off acquisition

Forescout Technologies is suing private equity firm Advent International for calling off its acquisition of the network security vendor.

The $1.9 billion acquisition agreement, which was announced in February, was called off by Advent on May 15, just three days before it was scheduled to close. Forescout Wednesday announced it had filed a lawsuit against Advent International for violating terms of their merger agreement.

In a statement sent to SearchSecurity, Advent claimed Forescout experienced a "material adverse effect" that prevented the vendor from meeting the closing conditions for the transaction. However, Theresia Gouw, chair of the Forescout board, issued a statement saying that the merger agreement explicitly allocated the risk of any impacts from COVID-19 to Advent.

"We have satisfied all conditions to closing under our merger agreement, and a material adverse effect has not occurred," Gouw said in the statement. "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. 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. Advent is required to promptly complete the transaction. We are taking immediate action to enforce Forescout's rights and ensure that Advent fulfills its obligations. We are confident that the steps that we are taking are in the best interests of Forescout and its shareholders."

Forescout president and CEO Michael DeCesare also issued a statement defending the company.

"I remain confident in the strength of Forescout and its incredible team," DeCesare said in a statement. "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."

However, an Advent spokesperson referenced Forescout's first quarter earnings for 2020 in their decision not to move forward the acquisition. The vendor reported disappointing results with $57.2 million in revenue and a loss of $61.2 million or $1.26 per share, which were well below Wall Street expectations.

"On May 15, Advent International notified Forescout Technologies that Forescout had not satisfied the closing conditions in the Merger Agreement, and as a result Advent would not be proceeding to consummate the merger on May 18. Advent reached this conclusion after an extensive analysis that included information provided by Forescout, the company's first quarter 2020 financial results and a detailed forecasting exercise to better understand future performance."

Advent's statement did not mention the COVID-19 pandemic and only referenced a negative effect on Forescout's "business, financial condition and operational results."

"In addition, there has been a disproportionate effect on the company's business relative to its direct peers, most of which have reported strong financial performance in the current environment. Advent has informed Forescout of its belief that the company will lack the ability to meet its financial obligations as they become due based on its expected post-closing financial condition. Further, we believe the company has failed to operate in the ordinary course in several material respects since the signing of the merger agreement."

Advent said it had been engaged with Forescout about an alternative transaction prior to the vendor's lawsuit. The private equity firm said it was "disappointed" Forescout was pursuing legal action but that it will "vigorously defend" its position in court.