Thoma Bravo seizes on compensation issue to lower Anaplan’s takeover price

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Thoma Bravo has successfully pressured software company Anaplan to cut the $10.7 billion price at which it is selling to the private equity firm, in one of the largest deals to be renegotiated since the market turmoil began this year.

California-based Anaplan revealed on Friday that Thoma Bravo claimed the company breached its merger agreement by overpaying new employees, leading the enterprise software group to accept a 3% cut in the takeover price .

The buyer and seller had already announced four days earlier that the transaction price of $66 per share, first announced in March, had been reduced to $63.75, to resolve a closing condition of the transaction that might not have been fulfilled.

But Friday’s filing provided more details about a private dispute that erupted in May between Anaplan and Thoma Bravo, which has become one of the dominant takeover groups that focus on technology.

Anaplan said it believed its management had “acted at all times in good faith in compliance” with its merger agreement, arguing that Thoma Bravo had simply used the compensation issue as a pretext to lower the purchase price or leave. However, the risk of protracted litigation, in which the deal could have completely failed, made the lower bid acceptable given the sharp drop in software valuations in recent months.

Contract fights over buyout deals signed — but not yet done — are common during volatile stock markets, with the tech-focused Nasdaq index having fallen 18% since Thoma Bravo agreed to acquire the company from software.

The renegotiation of the Anaplan deal comes as Elon Musk threatened to walk away from his $44 billion acquisition of Twitter, accusing the social media company of failing to provide enough information about the fake accounts.

On May 23, Anaplan Chief Executive Frank Calderoni informed Thoma Bravo that the company planned to pay out $137 million in “merit-based and new-hire grants” to hundreds of new workers, or 32 million more than the amount stated in its merger agreement.

Calderoni argued that the higher figure was still consistent with the management of the business in the “ordinary course”, as dictated by the contract, while arguing that the overrun was a “minor amount” that was “insignificant by relative to the size of his business. ”.

While the Anaplan chief later offered to cut wage subsidies to himself and other top executives, Thoma Bravo remained unmoved and the company feared that attempts to “remediate actions could hurt to employee morale.

Anaplan’s board ended up agreeing to the idea of ​​a “modest price reduction.” On June 3, Thoma Bravo offered to pay $61.00, which was negotiated the following days down to $63.75. The reduced purchase price will cost Anaplan shareholders an additional $400 million.

In return, Thoma Bravo increased the termination fee it would owe if the deal collapsed entirely from $586 million to $1 billion, while agreeing to tighten several contract terms, making it more difficult for the private equity firm to renegotiate the deal again.

US courts have rarely allowed buyers to escape signed merger and acquisition agreements if a company’s operating performance declines before closing. This has led buyers seeking to renegotiate deals to focus instead on alleged breaches of “interim operating covenants”, which dictate how companies run the business between signing and closing.

Thoma Bravo suggested to Anaplan that the cost overrun could have threatened its ability to raise the funding needed to fund the buyout deal at the original price. Thoma Bravo and Anaplan did not immediately respond to requests for comment.

Orlando Bravo, the co-founder of billionaire Thoma Bravo, has regularly tweeted about the recent slump in tech company valuations. On June 3, he wrote: “The software industry is still so young. I love how many great innovators are now embracing cost reductions, EBITDA and FCF. The best ones will adapt quickly and create amazing businesses.

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