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 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 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.
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
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.
Welcome to page 3.
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.
- 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.