Kaseya-Datto: SEC Filing Reveals Private Equity Interest Behind The Scenes

While Kaseya’s private equity owner was the first to reach out to Datto to talk about an acquisition, the timeline released by Datto via an SEC filing shows that several private equity companies were pursuing the company as well.

Behind The Scenes: Kaseya’s Planned Acquisition Of Datto

Kaseya in April unveiled a plan to acquire rival Datto In a deal valued at $6.2 billion. The two companies are both MSP platform developers and providers of a variety of technology aimed at helping MSPs run their business and bring services to their customers. However, the genesis of the planned acquisition started back in November 2021 when representatives of Miami-based Kaseya’s majority shareholder, private equity firm Insight Partners, reached out to Norwalk, Conn.-based Datto to talk.

Between that initial late November meeting and the official unveiling of the planned acquisition, a lot happened behind the scenes, including interest from at least six other private equity firms exploring an acquisition of Datto, the leaking of the news discussions related to “strategic options” for Datto, and a wide range of offers for the company.

While Kaseya is a privately held company, Datto is publicly listed with the stock ticker “MSP” to reflect its customer base. As such, Datto, in its dealing with suitors including rival Kaseya, had to carefully consider how to carry on discussions in private while ensuring it did not break any Securities and Exchange Commission regulations. As part of that, the company May 25 released an SEC Form 14C filing that not only contained details of the merger agreement between the two but also a timeline outlining the developments that took place between Datto, Kaseya, other suitors, and a host of lawyers and financial people.

Following are the key points included in the SEC document, which CRN has reviewed.

November 2021

On Nov. 23, an Insight Partners representative reached out on an unsolicited basis to a representative of Datto’s majority stockholders to look into scheduling a discussion about Datto. Insight Partners, via two unspecified investments, owns the majority of Kaseya.

On Nov. 29, Insight Partners representatives spoke to John Stalder, managing director of Vista Equity Partners, and Jack Dillon, senior vice president of Vista Equity Partners, about Insight Partners’ interest in a potential transaction with Datto. Stalder and Dillon, both of whom are on Datto’s board of directors, said they would inform the board of Insight Partners’ potential interest at the next board of directors meeting.

Vista Equity Partners in late 2017 acquired Datto and merged it with Autotask to turn Datto into an MSP-focused platform developer. Vista Equity Partners owns just shy of 70 percent of Datto.

December 2021

On Dec. 6, a representative from an unnamed private equity firm, referred to as “Party A” by Datto, contacted Stalder on an unsolicited basis to set up talks about a potential transaction with Datto.

Later that day, the board of directors met with Datto’s management and a representative of Datto’s outside legal advisor Kirkland & Ellis. Stalder discussed the inquiries from Insight Partners and Party A and their interest in acquiring Datto. The board told Stalder to inform them that Datto was not for sale but instead was focused on its upcoming investor day and on executing its plan for the remainder of the fourth quarter. The board also said that there was enough public information for private equity firms to consider potential transactions and that the board was open to discussing opportunities that created shareholder value. Stalder delivered the message to Insight Partners and Party A.

Stalder on Dec. 16, in a meeting with Datto’s board, its management team and a Kirkland & Ellis representative, said he delivered the message. The board agreed to send the same message to any other party showing similar interest in the future. No decision was made to pursue a transaction.

On Dec. 22, a representative of a second private equity firm, referred to as “Party B” by Datto, contacted Stalder on an unsolicited basis to generally discuss Datto’s business sector. No discussions about a transaction with Party B were held at the time.

January 2022

Evercore, which is a financial advisor to Insight Partners and TPG Global, on Jan. 3 contacted Monti Saroya, senior managing director at Vista Equity Partners and chairman of Datto’s board of directors, to say that Insight Partners and TPG Global might be interested in a transaction involving Datto. Saroya responded that indications of interest should be directed to Datto CEO Tim Weller (pictured).

On Jan. 10, a representative of a private equity firm referred to as “Party C” by Datto contacted Saroya on an unsolicited basis to express interest in acquiring Datto and was told to direct its proposal to Weller. Party C on Jan. 21 told Saroya it would submit a written proposal to acquire Datto and was told again to send any proposals to Weller.

On Jan. 23, Evercore told Saroya that Insight Partners and TPG Global remained interested and was continuing to look at publicly available information.

On Jan. 24, a Party C representative told Weller the company intended to submit a written proposal to do a transaction with Datto, and the following day Party C submitted a nonbinding written indication of interest to acquire all of Datto for $30 per share. Party C on Jan. 26 told Weller about its enthusiasm about such a transaction.

That same day, Evercore told Weller that Insight Partners and TPG Global were interested in a potential transaction for Datto and that they would submit a written proposal.

February 2022

On Feb. 2, Insight Partners and TPG Global sent Weller a nonbinding indication of interest to acquire all of Datto for $30.50 per share in a deal that would combine Datto with Kaseya. Kaseya and Insight Partners and TPG Global were jointly referred to as “Kaseya Parties.”

On Feb. 10, Datto’s board met with its management team and a Kirkland & Ellis representative to discuss the terms of both the Party C and the Insight Partners and TPG Global proposals, with the board determining neither high enough to consider. The board also discussed engaging a financial advisor to assist with evaluating and responding to any further proposals and settled on Qatalyst Partners based on its Datto relationship and its technology M&A experience.

On Feb. 14, Qatalyst Partners told Party C that its proposal was not at a level that would warrant further discussion at that time and the next day told Evercore and Insight Partners and TPG Global the same.

On Feb. 17, Party B submitted an unsolicited indication of interest to Weller to acquire all of Datto for $32.50 per share. On the same day, another private equity firm, referred to as “Party D” by Datto, contacted Qatalyst Partners on an unsolicited basis to say it had an interest in Datto.

On Feb. 18, Datto’s board met with members of the management team and representatives of Kirkland & Ellis to discuss management’s recent discussions with Qatalyst Partners and the preliminary indications of interest in acquiring the company. The board directed management to tell Qatalyst Partners to reach out to certain other private equity firms and potential strategic acquirers to see if there was interest in potential transactions with Datto.

After the Feb. 18 meeting, Qatalyst Partners contacted Insight Partners and TPG Global, Party B and Party C to tell them that Datto had received multiple unsolicited proposals and that they would have to submit revised proposals with increased offer prices. Qatalyst Partners also contacted Party A and Party D, seven other private equity firms, and six strategic parties that might have been interested in exploring a transaction with Datto. Party A, Party D and one other private equity firm referred to as Party E by Datto indicated they might be interested in making a proposal, while the other private equity companies and all the strategic parties passed.

On Feb. 23 Datto reported its financial results for the 2021 fiscal year, which were in line with and, in certain instances, exceeded, the company’s previously announced guidance.

On Feb. 24 Party C reached out to Qatalyst Partners to request a call with Weller to discuss Datto’s recent earnings release and other high-priority questions as Party C considered submitting a revised proposal.

On Feb. 25, Insight Partners and TPG Global submitted a revised indication of interest, proposing a price of $34 per share, as well as a draft merger agreement.

On Feb. 28, Datto and Party C signed a confidentiality agreement that allowed Party C to make acquisition proposals at any time following Datto’s entry into a definitive agreement for a third party to acquire Datto. After signing, Party C discussed recent financial results with Weller and then submitted a revised indication of interest valuing Datto at $33 to $34 per share.

March 2022

On March 1, Party B submitted a revised nonbinding indication of interest to acquire Datto for $33.75 per share.

On March 2, the Datto board, members of Datto’s management and Kirkland & Ellis discussed the various offers and noted that some potential bidders intended to combine Datto with an existing portfolio company owned by the relevant private equity firm. The management team updated the board on the long-range financial projections and formed a transaction committee that included Saroya, Stalder, Weller, board member Adrian Dillon, and Datto founder and former CEO Austin McChord (pictured).

Also on March 2, Party D submitted an initial indication of interest valuing Datto at $30 to $32 per share but was told its valuation was below that of other potential suitors. Party D two days later withdrew from the process.

About this time, Qatalyst Partners reached out to Insight Partners and TPG Global, Party B and Party C to offer to provide access to management and diligence information if they would sign confidentiality agreements.

Party E on March 7 submitted a nonbinding indication of interest to acquire Datto for a valuation of between $28 and $31 per share but was told the valuation was lower than what other parties submitted.

Party C on March 8 was provided with access to a virtual data room with diligence information about Datto. That same day, Party B entered a confidentiality agreement with Datto and the following day was given access to the virtual data room.

Party A on March 9 submitted a nonbinding indication of interest to acquire Datto at a valuation of $32.50 per share. That same day, members of Datto’s senior management held a due diligence meeting with Party C.

Party E on March 10 withdrew from the transaction process after informing Qatalyst Partners it would not consider making offers of over $31 per share.

On March 14, a representative of another private equity firm referred to as Party F by Datto sent an unsolicited email to Qatalyst Partners indicating interest in a transaction for Datto.

Bloomberg on March 16 broke the news that Datto was exploring strategic options. Datto that same day also discussed with the compensation committee how to keep management and certain employees from leaving the company following the announcement of any transaction. The compensation committee held a further discussion with Weller on May 18.

March 16 also saw Datto’s senior management provide a presentation to representatives of Party B about the company.

During the week of March 14, Datto entered into confidentiality agreements with both Party A and with Kaseya Parties. Later that week, Kaseya Parties and Party A were granted access to the virtual data room.

On March 20, Datto’s board of directors, members of the Datto management team and representatives of Kirkland and Qatalyst met to discuss the status of diligence and upcoming meetings. Qatalyst also discussed its communication with Party F, with the board then deciding Party F wasn’t able to make a qualified offer.

On March 21, members of Datto’s senior management provided a presentation to representatives of Kaseya Parties regarding the company. Four days later, Kaseya Parties and Party B asked Qatalyst Partners for permission to partner with each other.

An initial draft merger agreement was uploaded to the virtual data room on March 27 and made available to the Kaseya Parties, Party B and Party C. The following day, members of Datto management and representatives of Qatalyst Partners updated the transaction committee on the proposal by Kaseya Parties and Party B to partner on a combined proposal. The transaction committee allowed the partnership, after which Kaseya Parties and Party B were collectively referred to as the Consortium.

On March 28, Qatalyst Partners instructed the Consortium and Party C to submit written proposals with their best offers by April 7 to acquire 100 percent of Datto. Datto’s management team also provided a presentation to Party A, but by month’s end discussions with Party A had ended.

April 2022

The legal counsels for both the Consortium and Party C submitted revised drafts of their merger agreements.

On April 4, the transaction committee met with members Datto management and representatives from Kirkland & Ellis and Qatalyst Partners to discuss the latest bids.

Later that day, at the direction of the transaction committee, Kirkland & Ellis told the Consortium’s legal counsel that it would have to modify its proposal to address regulatory issues related to a transaction involving Datto and Kaseya and to provide clarity on the financing of the deal. Kirkland also provided feedback to Party C on its proposal.

On April 7, the Consortium dissolved when Kaseya Parties told Qatalyst Partners that it was no longer partnering with Party B. Later that day, Kaseya Parties proposed acquiring 100 percent of Datto for $35 per share. Meanwhile, Party C told Qatalyst Partners that any bid it submitted would be below its prior valuation, which Qatalyst Partners said would not be accepted. Later that day, Party A withdrew its interest in a transaction for Datto.

The Datto board of directors on April 8 met with Datto management and representatives of Kirkland & Ellis and Qatalyst Partners to discuss Kaseya Parties’ proposal, the withdrawal of other parties that had considered a transaction with Datto, the fact that a robust outreach to potential bidders had been taken, and the fact that no additional bidders had come forward following public news reports that Datto was considering a potential transaction. Given all that, the board decided to consider a transaction. Qatalyst Partners, at the request of the board, later that day told Evercore that if the Kaseya Parties increased its bid to $35.50 per share and improved certain key contractual points, the board was prepared to move forward with Kaseya Parties to seek to sign and announce a transaction before the market opened in the U.S. on Monday, April 11.

Datto’s board and the compensation committee on April 8 approved a grant of 200,000 restricted stock units to Weller, saying it aligned Weller’s compensation with market practices.

Representatives of Kirkland and the Kaseya Parties’ legal firm along with members of Datto’s management team on April 9 and April 10 communicated numerous times and exchanged revised drafts of the merger agreement and other documents. Qatalyst Partners on April 10 reviewed its financial analysis of the proposal with Datto’s board of directors.

Datto’s board very early on April 11 met with the company’s management and with representatives of Kirkland & Ellis and Qatalyst Partners in attendance to get a final update from Kirkland & Ellis and Qatalyst Partners. After that, Datto and Kaseya Parties executed the merger agreement and issued a joint press release announcing the agreement prior to the opening of the U.S. stock exchanges on April 11, 2022.