Advent's $1.9b Forescout acquisition fails to materialize

Forescout IPO  / Photo: PR

The Israeli-founded company's market cap has fallen from $1.9 billion to $1.05 billion.

The share price of cybersecurity company Forescout Technologies Inc. (Nasdaq: FSCT) fell 24% yesterday and wiped $300 million off the company's market cap. The share price is down another 5% today, giving a market cap of $1.05 billion.

The slump follows the report that the Advent International private equity fund would not be completing the acquisition of Foresight for $1.9 billion, as it announced in February. Foresight's share price has now returned to its level in 2017 of $22, after its IPO.

Foresight was founded by Israelis Hezy Yeshurun, Oded Comay, Dror Comay, Doron Shikmoni, and Noga Alon and is today managed in the US by CEO Michael DeCesare. The company provides security and control solutions for connected devices in enterprises and still maintains its development center in Israel. The statement by Forescout did not say that the deal had been cancelled but said, "Forescout and Advent are engaged in ongoing discussions regarding timing to close and the terms of the transaction. There can be no assurance that Forescout and Advent will be able to reach agreement on terms."

It seems that even if the acquisition is not ultimately cancelled, it will be completed at a lower price with Forescout's shareholders again being required to vote on the deal.

DeCesare said, "This is an uncertain time for everyone, as businesses and communities across the world navigate the challenges created by the Covid-19 pandemic. We continue to believe that Advent is the right partner for Forescout and we remain committed to completing the transaction in the near-term. We thank our employees for their extraordinary efforts and commitment to Forescout, and we remain focused on continuing our course of advancing our innovation roadmap and strategic cloud and business transformation."

If the deal is eventually canceled, then the buyers will be required to pay Forescout compensation of $112 million.

In the talks to buy Forescout, other parties made higher offers and after the acquisition agreement was signed, Forescout was given another month to find a better buyer and cancel the deal without paying a fine.

The deal was about to close this week but then Ben Axler's short-focused research firm Spruce Capital raised claims that Forescout had violated the terms of the deal's completion by withdrawing money from a credit line following weak results in the first quarter, which the company said was due to the Covid-19 crisis.

Among other things, Spruce Point claims that Forescout is going to burn through $60 million this year and that excuses about the coronavirus are a smokescreen and that Forescout must explain what is really happening.

Even before the Covid-19 crisis, Forescout admitted that it would have to change its business model and that weakness in the sales pipeline could bring lower results than expected in 2020.

Spruce celebrated their success in selling Forescout short and tweeted, "Thanks Advent for listening to us." Spruce believes that Forescout's share should be trading below $20.

All this is not good news for Forescout's shareholders who include Wellington Management and BlackRock, which each have a 6% stake in Forescout and Israeli venture capital fund Pitango and UK fund Amadeus, each with 5.5%.

Published by Globes, Israel business news - en.globes.co.il - on May 19, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Forescout IPO  / Photo: PR
Forescout IPO / Photo: PR
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