Private equity dealmakers are buzzing over last week’s decision by the Delaware Chancery Court to delay the proposed buy-out of Netsmart Technologies, Inc. by Bessemer Venture Partners and Insight Venture Partners. The $115 million transaction, scheduled for a shareholder vote on April 5, 2007, will not go forward until the company provides supplemental disclosures to shareholders regarding the particulars of its agreement with the PE purchasers, including financial projections underlying the valuation and fairness analysis by William Blair & Co., LLC.
The suit to enjoin the sale, led by minority (3%) shareholder Levictus Partners LP, claimed the proposed price (at $16.50 per share) denied shareholders the “full value” of their interests. In its letter to the Board last November, Levictus contends “the proposed buy-out price represents approximately 1.5x expected 2007 revenues vs. comparable company public valuations of 2.5 to 5x revenues or more in your market space.”
Price wasn’t the Court’s primary focus, however. In his March 14th ruling, Vice Chancellor Leo Strine Jr. pointed to Netsmart’s alleged failure “to engage in any logical efforts to examine the universe of possible strategic buyers and to identify a select group for targeted sales overtures.” PE managers are worried that the ruling may presage a trend, increasing “the likelihood of other disgruntled shareholders [hooking] up with plaintiff attorneys,” according to PE Week.
While the PE context may be new, the Court’s concerns are not. “The opinion goes more to ‘process’ than to value,” comments Neil Beaton (Grant Thornton, LLP), who last appeared in the front of the Delaware Chancery in the Gesoff case (See BVWire #47-1.) “The signal the Chancery has been sending [corporate directors] in all of its recent rulings is ‘make sure the process is fair or you will most likely end up paying more.’”
Please let us know
if you have any comments about this article or enhancements you would like to see.