Forescout $1.9B Advent Private Equity Deal On Ice: Covid-19 Fallout

May 18, 2020, 09:56 AM EDT

Forescout and Advent International are in ongoing discussions regarding timing and terms of the transaction, but there’s no assurance that the two sides will be able to reach an agreement. The $1.9 billion deal was announced in February.

Forescout shares plummeted 20 percent in pre-market trading Monday after announcing that Advent International would not be closing its $1.9 billion acquisition today as had been scheduled.

The Boston-based private equity firm told San Jose, Calif.-based Forescout of its decision Friday, and the two sides are engaging in ongoing discussions regarding timing to close and the terms of the transaction, according to Forescout. There can be no assurance that Forescout and Advent will be able to reach an agreement on terms, according to the company.

“This is an uncertain time for everyone as businesses and communities across the world navigate the challenges created by the COVID-19 pandemic,” Forescout President and CEO Michael DeCesare said in a statement. “We continue to believe that Advent is the right partner for Forescout and we remain committed to completing the transaction in the near-term.”

Forescout’s stock is down $6.03 (20.43 percent) to $23.49 per share in pre-market trading Monday, giving the company a valuation of $1.45 billion, or $450 million less than the Advent agreed to pay for the cybersecurity vendor in early February. Advent didn’t immediately respond to a request for comment from CRN.

Advent notified Forescout of its decision on the same day that Sunnyvale, Calif.-based Fortinet sued Forescout in U.S. District Court for allegedly violating three patents. Fortinet claimed in a 24-page filing Friday that products such as Forescout’s CounterACT Network Access Control tool violate patents held by Fortinet after its 2018 acquisition of rival Bradford Networks.

Four days earlier, Forescout announced earnings that came in well short of analyst expectations. Forescout said last week that revenue for the quarter ended March 31, 2020 fell 24 percent to $57.2 million due to the impact of the coronavirus pandemic on large-size deals and new perpetual licenses. Analysts had been expecting sales of $78.9 million in the quarter, according to Seeking Alpha.

Meanwhile, Forescout’s GAAP net loss worsened by 78 percent to $61.2 million, or $1.26 per share, far worse than the GAAP net loss of $0.56 per share that analysts had been expecting, according to Seeking Alpha.

During the first quarter, Forescout cut 90 positions in its sales, marketing and engineering organizations as part of a $2.5 million effort to realign the company’s cost structure, according to a filing with the U.S. Securities and Exchange Commission (SEC). The restructuring plan cut Forescout’s sales and marketing headcount by 16 percent and research and development headcount by 5 percent during the quarter.

The proposed acquisition of Forescout by Advent International was announced less than two-and-a-half years after Forescout first went public. The transaction was approved by Forescout shareholders in April.