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Forescout sues Advent to complete $1.9B merger

(Reuters) — Forescout Technologies Inc. sued Advent International Corp. on Wednesday after the private equity firm pulled out of a deal to buy the U.S. cybersecurity company for $1.9 billion. Forescout shares fell 5.2% to close at $19.84.

Companies are walking away from acquisitions agreed to before the global coronavirus outbreak as economies suffer from lockdowns and recovery prospects are unclear.

Forescout asked the Delaware Court of Chancery to force Advent to complete the deal after the buyout firm notified it last Friday it would back out. The agreement was signed in early February and scheduled to close on Monday.

In a statement, Advent responded that it had informed Forescout of the company's failure to maintain operations and financial resources as required under the agreement. It also said Forescout fared worse than its peers, triggering a material adverse effect clause in their contract allowing it to walk away.

In its lawsuit, Forescout argued the clause excluded pandemics, and that Advent already knew the coronavirus had spread widely by the time it signed the deal. Forescout said its operations complied with the deal's "ordinary course" covenants, and that the claim it was heading toward insolvency was "manufactured."

Advent said it would defend its position in court.

The legal standard for acquirers to prove a "material adverse effect" in court has occurred is high. The only occasion in which a judge has ruled in Delaware, where many such cases are litigated, that this effect allows the acquirer to walk away was in Fresenius SE's $4.75 billion deal to buy generics drugmaker Akorn in 2018.

To avoid protracted litigation, acquisition targets often allow the acquirer to walk away or settle for less.

Earlier this month, L Brands Inc. let private equity firm Sycamore Partners terminate a $525 million deal to acquire its Victoria's Secret lingerie business after the two exchanged lawsuits.

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