How Kaseya Outbid Six Firms to Buy Datto: Inside the M&A Deal

How did Kaseya negotiate to acquire Datto for $6.2 billion from Vista Equity Partners — and what other companies bid to potentially acquire the MSP technology company? Details about the extended Kaseya-Datto M&A negotiations have surfaced in an SEC filing. Exclusive ChannelE2E reporting has further fleshed out the details.

Turns out, private equity firm Insight Partners — which owns Kaseya — reached out to two Vista Equity executives who serve on Datto’s board back in November 2021. From there, at least six additional private equity firms — known as Party A, B, C, D, E and F in the SEC filing — discussed acquiring Datto in the weeks that followed.

Francisco Partners, Thoma Bravo Were In the Mix — Until…

For those keeping score and reading through the SEC filing, multiple sources now tell ChannelE2E:

  • Private Equity Firm B in the SEC filing is Francisco Partners, which explored fully acquiring Datto and then also explored partnering with Insight Partners to buy Datto, multiple sources tell ChannelE2E.
  • Private Equity Firm C was Thoma Bravo, owner of ConnectWise, N-able and Sophos (among others). Thoma Bravo made inquires about buying Datto in order to potentially merge the business with ConnectWise, multiple sources tell ChannelE2E. But late in the game, Thoma Bravo scaled back its potential target buyout price for Datto — leaving Kaseya/Insight Partners alone in the bidding process for Datto.
  • We’ve updated our coverage below to specifically state “Francisco Partners” as Party B and “Thoma Bravo” as Party C, based on ChannelE2E’s reporting.

Amid all the jockeying for position, Kaseya’s pursuit of Datto didn’t exactly involve an aggressive bidding war. Some of the private equity firms dropped out of the running early on, while others bowed out late or said they’d potentially reduce their bids — perhaps concerned that Datto’s big installed base of hardware appliances could also be a liability. And in the final days of negotiations, Kaseya essentially bid against itself and sweetened the pot just a bit to earn Datto’s signature on the deal.

Did Strategic Buyers Bid for Datto? Also of note: As private equity inquiries reached Datto, the Datto M&A representatives reached out to six potential “strategic buyers” — a term that likely describes hardware, software, cloud and security technology companies. However, potential strategic buyers — perhaps names like Cisco Systems, Hewlett Packard Enterprise, HP and Microsoft — did not jump into the bidding process.

Now that you know some of the players — and non-players — in the deal, here’s a day-by-day recap of the Datto buyout process and associated negotiations, as documented in an SEC filing and further reported by ChannelE2E. Note: We’ve paraphrased some of the legal M&A jargon below.

First Contact: Insight Partners Reaches Out…

November 23, 2021: Insight Partners reached out on an unsolicited basis to a representative of Datto’s Majority Stockholders seeking to schedule a discussion about Datto. Details about the inquiry — including who was contacted — are undisclosed.

November 2021: Insight also contacted Vista Equity’s John Stalder, who also serves on Datto’s board

November 2021: Insight contact Vista Equity’s Jack Dillon, who serves on Datto’s board

November 29, 2021: The deeper pursuit begins. Representatives from Insight Partners reached out to Vista Equity’s John Stalder and Jack Dillon regarding Insight’s interest in a potential transaction with Datto. Both Stalder & Dillon serve on Datto’s board.

December 6, 2021:

  • Another private equity firm — call them Party A — contacted Vista Equity’s Stalder, and requested a conversation.
  • Datto’s board and certain Datto management met. Kirkland & Ellis LLP, the company’s outside legal advisor, attended. The Board directed Stalder to inform Insight Partners and the rival private equity firm that Datto was not for sale — but that there was sufficient public information available for the private equity firms to develop their views with respect to any potential transaction. From there, Datto’s board was open to evaluating any opportunities that created value for all shareholders, the company indicated.

December 22, 2021: A third private equity firm — Francisco Partners — contacted Stalder on an unsolicited basis to generally discuss Datto’s target market, though potential M&A was not discussed.

Want to Bid? Call Datto CEO Tim Weller

January 2022: Vista Equity’s Monti Saroya, also chairman of Datto, received private equity inquiry about Datto

Datto CEO Tim Weller

January 2022: Datto CEO Tim Weller is point person for M&A inquiries

January 3, 2022: Evercore, a financial advisor to Insight Partners and TPG Global, contacted Vista Equity’s Monti Saroya — who also serves as Datto’s chairman. Evercore indicated that Insight/TPG might be interested in buying Datto. Saroya’s response: Any indications of interest should be directed to Datto CEO Tim Weller.

January 10, 2022: Thoma Bravo contacted Vista Equity’s Saroya on an unsolicited basis and indicated that Thoma was interested in exploring a potential strategic transaction Datto. Saroya told Thoma Bravo that they should direct such proposals to Weller.

January 21, 2022: Thoma Bravo called Saroya again to say the firm planned to submit a written proposal with respect to a potential transaction involving the Company. Again, Saroya told Thoma Bravo to send any proposals directly to  Weller.

January 23, 2022: Evercore contacted Saroya and informed him that Insight/TPG remained interested and was continuing to do work based on publicly available information.

January 24, 2022: Thoma Bravo contacted Weller to inform him that they were interested in a potential transaction with Datto and intended to submit a written proposal.

Datto Buyout Interest: $30 Per Share From Thoma Bravo vs. $30.50 From Insight

January 25, 2022: Thoma Bravo submitted a non-binding written indication of interest to acquire all of the outstanding shares of Datto for $30.00 per share.

January 26, 2022:

  • Private Equity Firm Thoma Bravo contacted Weller to reiterate enthusiasm with respect to a potential transaction with the Company.
  • Evercore contacted Weller to inform him that Insight/TPG were interested in a potential transaction involving Datto and that they would be submitting a written proposal.

February 2, 2022:

  • Insight/TPG submitted a non-binding indication of interest to Weller to acquire all of the outstanding shares of the Datto for $30.50 per share, as part of a plan to combine Datto with Kaseya.
  • Evercore contacted Weller to reiterate Insight/TPG’s enthusiasm with respect to the possibility of a potential business combination.

February 10: Datto’s board met along with management and a representative of legal advisor Kirkland.

  • Datto’s board determined that the current offers submitted by Thoma Bravo and Insight/TPG were not at a level that would warrant further engagement at this time.
  • Datto’s board decided to hire a financial advisor — Qatalyst Partners  — to assist with evaluating and responding to any further proposals that may be received.
  • The board also instructed Datto management to begin preparing long-range projections for the company for use by the board in evaluating any further proposals that may be received.

February 14, 2022: Qatalyst Partners, at the request of Datto’s board, called Private Equity Firm Thoma Bravo decline the $30.00 per share indication of interest submitted on January 25.

February 15, 2022: Also at the request of Datto’s board, Qatalyst Partners called Evercore to discuss the Insight/TPG February 2 Proposal and informed Evercore that the board had determined that the valuation in the Insight/TPG February 2 Proposal was not at a level that would warrant further engagement at this time.

Datto Buyout Interest: $32.50 Per Share From Francisco Partners

February 17, 2022:

  • Private equity firm Francisco Partners submitted an unsolicited indication of interest to Datto CEO Tim Weller to acquire all of the outstanding shares of Datto for $32.50 per share.
  • Private equity firm Party D contacted Qatalyst on an unsolicited basis expressing an interest in the Company.

February 18, 2022:

  • Datto’s board, management team members and Kirkland met. The board decided to formally engage Qatalyst Partners to assist with the evaluation of strategic alternatives available to the company.
  • Datto’s board directed Qatalyst Partners to contact Insight/TPG, Francisco Partners and Thoma Bravo to inform them the company had received multiple unsolicited proposals, and that the price per share set forth in their respective proposals represented insufficient value for the company’s shareholders.
  • Also, at the direction of the board, Qatalyst Partners contacted nine additional private equity firms (including Party A and Party D) and six strategic parties, which were selected for outreach as the parties most likely to be interested in exploring a transaction involving the company based on their perceived interest in making investments in the industry in which the Company operates and their financial capability to consummate a transaction of this size.
  • Private Equity firms Party A and Party D and one other private equity firm, referred to herein as Party E, subsequently indicated they would potentially be interested in a transaction involving Datto.
  • None of the strategic parties or the other private equity firms contacted was interested in pursuing the opportunity citing a variety of reasons, including competing priorities.

Continue to page 2 for more Datto buyout negotiation details.

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