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

Welcome to page two.

February 23, 2022: Datto announced its financial results for the 2021 fiscal year, which were in-line with and, in certain instances, exceeded, the company’s previously announced guidance.

February 24, 2022: Private Equity firm Thoma Bravo spoke to Qatalyst Partners and requested a call with Datto CEO Tim Weller to discuss Datto’s recent earnings release and other high priority questions as Thoma Bravo considered submitting a revised proposal.

Datto Buyout Interest: $34 Per Share From Insight/TPG (i.e., Kaseya)

February 25, 2022: Insight/TPG submitted a revised indication of interest, proposing a price of $34.00 per share, as well as a draft merger agreement.

February 28, 2022:

  • Datto entered into confidentiality agreement with Thoma Bravo. The confidentiality agreement provided Thoma Bravo with the ability to make acquisition proposals at any time following the Datto’s entry into a definitive agreement with a third party providing for a sale of company.
  • Thoma Bravo submitted a revised indication of interest valuing the Company at $33.00–34.00 per share. However, later in the M&A discussions, Thoma essentially told Datto to disregard the $33 to $34 per share figures because they were too high. Why? Because Thoma believed Datto’s cloud-connected hardware appliance business might be disrupted by direct-to-cloud rivals, ChannelE2E believes.

March 1, 2022: Private Equity Firm Francisco Partners submitted a revised non-binding indication of interest to acquire Datto for $33.75 per share.

Datto Forms M&A Committee: Austin McChord Is In the Room

  • March 2022: Datto board member Adrian Dillon joins “transaction committee” to assist potential M&A process

    March 2022: Datto founder Austin McChord joined “transaction committee” to assist potential M&A process

    Datto’s board formed a Transaction Committee that included Monti Saroya, Stalder, Adrian Dillon, Datto founder Austin McChord and 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.

  • Party D submitted an initial indication of interest valuing the Company at $30.00–32.00 per share. Datto rejected the offer and encouraged Party D to increase their price.

March 4, 2022: Party D informed Qatalyst Partners that they could not increase their price above the range indicated in the March 2 proposal and were withdrawing from the process.

March 5, 2022:

  • 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.
  • Following the meeting, Qatalyst Partners reached out to each of Insight/TPG, Francisco Partners and Thoma Bravo to inform them the Datto would be willing to provide access to management and diligence information (including the Projections) following execution of a mutually acceptable confidentiality agreement.

March 7, 2022: Private Equity Firm Party E submitted a nonbinding indication of interest to acquire Datto at a valuation of between $28.00 and $31.00 per share. Datto rejected the offer and encouraged Party E to increase its offer price if it wanted to move forward in the process.

March 8, 2022:

  • Datto provided Thoma Bravo with access to a virtual data room with diligence information regarding the Company (the “Data Room”).
  • Datto entered into a confidentiality agreement with Francisco Partners. The following day, on March 9, 2022, Francisco Partners was provided with access to the Data Room.

March 9, 2022:

  • Private Equity Firm Party A submitted a nonbinding indication of interest to acquire Datto at $32.50 per share.
  • Also on March 9, 2022, members of the Company’s senior management held a due diligence meeting with Thoma Bravo, which was attended by representatives of Qatalyst Partners.
  • Datto Projections prepared by management were uploaded to the Data Room.

March 10, 2022: Private Equity Firm Party E informed Qatalyst Partners that they were not interested in pursuing a transaction with the Company at a price above $31.00 per share and were withdrawing from the process.

March 14, 2022: A representative of a private equity firm, which we refer to as Party F, sent an unsolicited email to a representative of Qatalyst Partners indicating that they were interested in a transaction involving the Company. Qatalyst Partners informed Party F that if they had a strong interest, Party F should submit an indication of interest based on publicly available information.

March 16, 2022:

  • Bloomberg published an article reporting that Datto was exploring strategic options, including a potential sale.
  • Datto’s Compensation Committee discussed the competitive employment environment and the risks of employees leaving or being poached following a deal announcement and the importance of ensuring the necessary employees remained in place to manage Datto following the announcement of any transaction.

During the week of March 14, 2022: Datto entered into confidentiality agreements with each of Party A and the Kaseya Parties (which included Insight and TPG). The Kaseya Parties and Party A were granted access to the Data Room (including the Projections) on March 16 and March 17, respectively.

March 18, 2022: Datto’s Compensation Committee held a meeting, with Weller, representatives of Kirkland and Pearl Meyer in attendance. The Compensation Committee reviewed and discussed the alternatives with respect to potential post-termination change in control protections.

March 20, 2022: Datto Board determined to not engage in subsequent conversations with Party F given its failure to submit an indication of interest, fund size and lack of history in similar transactions.

On March 21, 2022: Datto’s senior management provided a presentation to representatives of Kaseya Parties regarding the company, which was attended by representatives of Qatalyst Partners.

Insight and Francisco Partners Consider M&A Partnership to Buy Datto

On March 25, 2022: Representatives of the Kaseya Parties and Francisco Partners contacted representatives of Qatalyst Partners to request permission to partner with each other.

On March 27, 2022: An initial draft merger agreement that had been prepared by Kirkland was uploaded to the Data Room and made available to the Kaseya Parties, Francisco Partners and Thoma Bravo. The initial draft merger agreement provided for (i) a “hell-or-high-water” regulatory efforts covenant, (ii) a 45-day go-shop period following the announcement of a transaction, during which the Company would be entitled to solicit competing proposals and (iii) the buyer to provide equity commitment letters for the full purchase price.

Datto Requests “Last and Best Offer” for Company Buyout

On March 28, 2022:

  • The Kaseya Parties and Francisco Partners had requested to partner with each other to submit a combined proposal. The Transaction Committee discussed the benefits of the two parties working together, including the fact that it was unlikely that Francisco Partners would be able to submit a competitive proposal on its own, and determined to allow the Kaseya Parties and Francisco Partners to partner with each other.
  • 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.

March 29, 2022:

  • The Compensation Committee approved amendments to the award agreements for certain executives that provided for acceleration of equity awards upon certain qualifying terminations within 12 months following a change of control transaction.

March 17, 2022 to March 31, 2022: Qatalyst Partners followed up with Party A (name unknown) multiple times, noting that the process was moving expeditiously and that Company management were ready to assist with any diligence questions. On March 31, 2022, members of the Company’s senior management provided a presentation to representatives of Party A regarding the Company, which was attended by representatives of Qatalyst Partners. Following that meeting, Party A did not engage in any further discussions with the Company.

Continue to page 3 for the final portion of the Datto buyout negotiations.

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