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

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March 1, 2022 through March 31, 2022: Each of the Kaseya Parties, Francisco Partners and Thoma Bravo provided supplemental due diligence requests and had further diligence discussions with members of management of Datto to discuss the company’s business and other due diligence matters.

April 1: Legal counsel for Thoma Bravo and Willkie Farr & Gallagher (“Willkie”), legal counsel for the Consortium, each submitted revised drafts of the merger agreement to Kirkland.

April 4, 2022: The 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. Kirkland also noted that the Board was asking for a period of time after signing when the Board would have a fiduciary out if a superior proposal emerged. Willkie stated that it would be difficult for their client to proceed with a transaction without an irrevocable written consent delivered shortly after execution of the merger agreement. Kirkland also noted that Willkie’s markup of the merger agreement had noted that a full equity backstop was under consideration and stated that the Board would need clarity on the financing plan in connection with the final bid submission.

Kirkland also held a call with legal counsel for Thoma Bravo and provided them with feedback on the issues in their markup of the merger agreement, noting that, to best position their client in the competitive process, they should submit revised drafts of the merger agreement with their final bid on April 7, 2022, reflecting movement they were willing to make on the points that had been raised.

Francisco Partners Drops Out; Thoma Bravo Considers Reduced Offer; Kaseya/Insight Bid $35 Per Share

April 7, 2022:

  • Representatives of the Kaseya Parties informed representatives of Qatalyst Partners that they were no longer partnering with Francisco Partners but were planning to submit a bid and revised merger agreement later in the day, as requested. Later in the day, the Kaseya Parties submitted a proposal to acquire 100% of the equity securities of the Company for $35.00 per share.
  • Why Thoma Bravo Lost Interest: Thoma Bravo informed Qatalyst Partners that, if Thoma Bravo were to submit a bid, it would be below the range in Thoma Bravo’s February 28, 2022 indication of interest due to a change in Thoma Bravo view of the long-term growth prospects of the industry in which the Company operates. Read between the lines, and Thoma likely had concerns about Datto’s cloud-connected hardware appliance business, which could potentially be disrupted by direct-to-cloud data protection services.
  • The representatives of Qatalyst Partners informed Thoma Bravo that the Company would not be interested in pursuing a transaction at a price below the range indicated in their February 28, 2022 indication of interest. Thoma Bravo did not submit an updated proposal.
  • Representatives of Qatalyst Partners followed up with representatives of Party A and were informed that Party A was withdrawing from the process and would not be submitting a bid for the Company because Party A did not believe it would be able to compete on valuation.

Datto Inspires Kaseya to Increase Its Bid to $35.50, Though No Rival Bidders Are Involved

April 8, 2022:

  • At the request of Datto’s board, Qatalyst Partners called representatives of Evercore and informed them that if the Kaseya Parties increased their price to $35.50 per share and improved certain key contractual points, Datto’s board was prepared to move forward with the Kaseya Parties to seek to sign and announce a transaction before the markets opened in the U.S. on Monday, April 11.
  • Representatives of Evercore requested that Datto provide the Kaseya Parties with a short period of exclusivity to finalize the terms of a transaction. Representatives of Qatalyst Partners noted that the Company was prepared to move forward expeditiously to seek to sign and announce a transaction on Monday, but would not agree to provide the Kaseya Parties with an exclusivity period. Representatives of the Kaseya Parties confirmed they were prepared to move forward on that basis. Also on April 8, 2022, a representative of Qatalyst Partners confirmed by email to representatives of Kirkland that there had been no changes to its conflict disclosure which had previously been reviewed with the Board.
  • Datto’s board and Compensation Committee approved a grant of 200,000 restricted stock units to Weller. This award was made to align Mr. Weller’s compensation with market practices and was determined to be in the best interests of the company following discussions with the Company’s independent compensation consultant.
  • Representatives of Kirkland and Willkie held a call to discuss the status of the transaction documentation, including the merger agreement, disclosure schedules and equity commitment letters.

April 9:

  • Early in the morning, Datto’s legal advisor — Kirkland — sent a revised draft of the merger agreement to Willkie.

Merger Agreement Reached

April 10, 2022:

  • Datto’s board held a meeting with members of the Company’s management and representatives of Kirkland and Qatalyst Partners in attendance. The meeting determined that the Kaseya-Insight offer was the best path forward.

April 11: Datto and the Kaseya Parties executed the Merger Agreement, which was announced that day.

So what’s next? Here’s a timeline of what’s still to come for the pending Kaseya-Datto merger.

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