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Part of a ZDNet Special Feature: Coronavirus: Business and technology in a pandemic

Forescout files lawsuit against Advent for withdrawal of merger plans due to COVID-19

Advent says the pandemic has resulted in “material” changes at Forescout. The company disagrees.

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Forescout has filed a complaint against Advent International Corporation for its intention to withdraw from a previously-agreed merger plan in light of COVID-19.

The cybersecurity firm announced its acquisition by Advent in February. At the time, Forescout said the $1.9 billion deal -- agreed at a premium of 30% on closing share prices -- would see Advent and a co-investor take the company private while keeping the current Forescout president and CEO Michael DeCesare in his leadership role. 

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The acquisition was expected to close in the second quarter of 2020, having obtained the necessary approval from all parties involved. 

However, Forescout received word by Advent on May 15 that the investor planned to withdraw from the agreed purchase, three days before the deal was set to be finalized. 

The firm says that by doing so, Advent has "violated the terms of their merger agreement," and is asking the Delaware Court of Chancery to force Advent to "honor its commitments and immediately complete the pending acquisition."

Advent's reason, according to Forescout, for not completing the merger is that one of the closing conditions has not been satisfied -- the existence of a "material adverse effect" at Forescout caused by the spread of the novel coronavirus. 

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The merger agreement, while confidential, "explicitly allocated the risk of any impacts" from COVID-19, Forescout says, and so by shying away from closing the deal, Advent has allegedly failed to meet its legal obligations. 

Forescout added that there has been no "material adverse effect" felt at the cybersecurity firm due to the pandemic, and as such, all closing conditions have been satisfied. The company shared financial and technical information with Advent, as well as internal business estimates and projections, through a due diligence investigation taking place over the past few months.

The company has gone further, claiming that Advent "has relied on meritless excuses to support its position."

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"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," says Theresia Gouw, Forescout Board Chair. "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 told Reuters that the investor would defend its decision in court. 

ZDNet has reached out to Advent and will update when we hear back. 

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