Cybersecurity Firm Sues Advent Over Nixed $1.9B Takeover

By Benjamin Horney
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Law360 (May 20, 2020, 2:30 PM EDT) -- Forescout Technologies Inc. launched a lawsuit in Delaware state court Wednesday alleging that Advent International violated the terms of its planned $1.9 billion takeover of the cybersecurity firm by pulling out of the deal, and asking the court to compel the private equity firm to complete the transaction.

The lawsuit comes only a couple of days after Forescout revealed how Advent informed it last week that it would not be closing the $33 per share deal as scheduled. The transaction, inked in February, was originally set to close this week.

According to Forescout, Advent is claiming it cannot close the deal because of a material adverse effect that occurred at Forescout.

"We have satisfied all conditions to closing under our merger agreement, and a material adverse effect has not occurred," Theresia Gouw, chair of the Forescout board, said in a Wednesday press release announcing the lawsuit. "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 macroeconomic conditions."

According to Forescout, the merger agreement explicitly states that the risk of any effects from the coronavirus pandemic falls on the shoulders of Advent.

"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," Forescout said in the press release.

Meanwhile, the company claims it is in a strong financial position. The cybersecurity firm had $100 million of cash on hand as of March 31, president and CEO of Forescout Michael DeCesare said in the press release.

"We are well positioned for success and the fundamentals of our business have not changed," DeCesare said. "Customers around the world trust Forescout to help solve their most pressing security challenges, and that's exactly what we are doing."

Advent pushed back on Forescout's claims, with a spokesperson saying in a statement that the company determined it could not close the deal as planned "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 said its analysis, which it shared with Forescout, showed the company has experienced a material adverse effect on its 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 said.

Although the two companies were in talks to try to negotiate a path to still closing the deal, Wednesday's lawsuit represents an escalation in contentiousness between Forescout and Advent.

"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. Advent is prepared to respond and will vigorously defend its position in court," Advent said.

Wilson Sonsini Goodrich & Rosati PC is acting as legal counsel to Forescout.

Counsel information for Advent was not immediately available Wednesday.

The case is Forescout Technologies Inc. v. Ferrari Group Holdings LP and Ferrari Merger Sub Inc., case number not immediately available Wednesday, in the Court of Chancery for the state of Delaware.

--Editing by Stephen Berg.

For a reprint of this article, please contact reprints@law360.com.

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