Kaseya-Datto Merger: How Datto’s Board Apparently Fulfilled Its Fiduciary Responsibility
Watch a Hollywood movie, and M&A deals are seemingly hatched over a weekend of intense negotiations. In reality, some M&A deals take several months to pull together. Such was the case in Kaseya’s $6.2 billion buyout of Datto, which is still pending regulatory approval.
How did the deal come together? Many of details — the six-month deal timeline, the list of bidders and more — surfaced in a Datto SEC filing coupled with exclusive ChannelE2E reporting. The M&A timeline — in terms of inquiries and negotiations — stretches from November 2021 through April 2022. But if you boil down the timeline, you can see how Datto’s board apparently fulfilled its fiduciary responsibility to shareholders ($MSP). Here are 10 key steps that Datto’s board took in the M&A process:
1. January 3, 2022: Datto CEO Tim Weller Identified as Point Person
When Datto board members began to receive M&A inquiries, they offered a standard response: Any indications of interest should be directed to Datto CEO Tim Weller.
2. February 10, 2022: Datto Board Hires Qatalyst Partners
As unsolicited bids for Datto reached Weller, 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. Number of Bids for Datto So Far: 2
3. February 17, 2022: Datto’s Board Considers Strategic Alternatives
The board decided to formally engage Qatalyst Partners to assist with the evaluation of strategic alternatives available to the company.
4. February 18, 2022: Datto’s Board Seeks Additional Bidders
At the direction of the board, Qatalyst Partners contacted several private equity firms 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.
Side note: So-called “strategic parties” are often hardware, software, cloud or distribution businesses that have the financial resources and strategic need to buy a specific business. In this particular case, no “strategic partners” emerged to bid for Datto, despite Qatalyst Partners’ efforts.
5. March 1, 2022: Datto’s Board Forms M&A Committee
Datto’s board formed a Transaction Committee that included Monti Saroya, John Stalder, Adrian Dillon, Datto founder Austin McChord and CEO Tim Weller, all of whom had significant M&A experience. The Board reserved for the full board the right to approve any potential transaction involving the Company.
6. March 5, 2022: Should Datto Remain Standalone Business?
Datto’s board and members of management in attendance also discussed with representatives of Qatalyst Partners potential alternatives to a sale of the company, including continuing to execute the company’s standalone plan. The board instructed management and its advisors to continue to move forward with a process to determine if any of the parties that had submitted initial indications of interest would be willing to acquire Datto at a compelling valuation.
7. March 17, 2022: Datto M&A Rumor Leaked to Bloomberg
Bloomberg published an article reporting that Datto was exploring strategic options, including a potential sale. ChannelE2E can’t prove it, but the story may have been a leak designed by Datto’s board to attract potential bidders into the action (admittedly, that’s a Captain Obvious theory).
8. March 8, 2022 and Multiple Dates Thereafter: Datto Data Room Gains Occupants
Datto provided private equity firm Thoma Bravo with access to a virtual data room with diligence information regarding the Company (the “Data Room”). Separate access was later provided to Francisco Partners (March 9), private equity firm A (potentially Bain Capital, March 16) and Kaseya/Insight Partners (March 17).
9. March 9, 2022: Datto Data Room Gains Financial Projections
Datto Projections prepared by management were uploaded to the Data Room.
10. March 8, 2022: Datto Requests “Last and Best Offer”
Qatalyst Partners sent a process letter to each of the Consortium (i.e., Kaseya, Insight and Francisco Partners) and Thoma Bravo instructing each party to submit written proposals specifying the best and final per share purchase price that the party would be willing to pay for Datto.
11. BONUS Part A — April 4, 2022: Datto’s Antitrust Concerns
Datto’s Transaction Committee held a meeting, with members of the Company’s management and representatives of Kirkland and Qatalyst Partners in attendance. Kirkland noted, among other things, that the Datto was not prepared to enter into a transaction with the Kaseya Parties without a robust regulatory efforts covenant.
12. BONUS Part B — April 7, 2022: One Bidder Left, But…
All of the bidders except for Kaseya/Insight Partners had essentially dropped out of the bidding process at this point. Kaseya/Insight’s current bid was $35.00 per share for Datto. Instead of settling on that price, Datto’s board took the extra step and requested a $35.50 per share offer. Kaseya/Insight partners agreed to the request on April 8, 2022.
Bottom line: Assuming Datto’s SEC filings are accurate, it appears that the company’s board pursued every strategic option possible to find the highest bid possible for the MSP-focused technology company. Though we must concede: Much of the narrative above surfaced directly from Datto’s SEC files. ChannelE2E, through exclusive reporting, uncovered the additional bidder names and their associated bids. We don’t know if bidders and other parties have different views of how the M&A bidding process unfolded.