Can a TRO Be Used to Toll Drop-Dead Date? The Latest in M&A Battles
As we have highlighted in recent alerts, M&A litigation is moving quickly to react and adapt to the ongoing COVID-19 pandemic. In a new case filed this week, it appears that lawyers for a spurned acquisition target have taken yet another unprecedented step in attempting to force an unwilling buyer to close the agreed upon transaction.
At first glance, the dispute between cybersecurity firm Forescout Technologies, Inc. (Forescout) and affiliates of private equity firm Advent International Corporation (Advent) looks like many of the recent cases we have discussed, with Advent, the buyer, seeking to terminate the merger agreement due to the material adverse effect they claim has occurred at Forescout, the target. That issue by itself is interesting enough, because the merger agreement was negotiated after the pandemic began and specifically excluded effects of pandemics from the material adverse effect (MAE) definition, meaning that Advent generally agreed to accept the risk of a downturn in Forescout’s business due to the pandemic. Advent apparently argued that the pandemic has had a disproportionate impact on Forescout as compared to the industry as a whole, and therefore the MAE clause does permit termination.
Putting the MAE question aside for now, the timing issues presented by this dispute make it even more interesting, and more urgent. Advent informed Forescout on May 18, 2020 that they would not close as scheduled. The “drop-dead date” in the merger agreement is June 6, 2020, meaning that, without judicial intervention, either party could terminate the deal less than three weeks after Advent’s initial refusal to close. Forescout, apparently taking guidance from the ruling in the Juwell case issued just last week, did not waste any time in suing. In a complaint filed on May 19, 2020, Forescout sought to force Advent to specifically perform its obligation to close the transaction. Then on May 20, 2020 Forescout made a motion seeking either an expedited trial, which they likely knew was virtually impossible given the current circumstances and last week’s decision in the Juwell case in which the court refused to grant a motion for an expedited trial, or alternatively, a temporary restraining order (TRO) prohibiting Advent from terminating the merger agreement or asserting the passing of the drop dead date as a defense to specific performance.
Although pursuing temporary equitable relief (such as a TRO or preliminary injunction) in the context of preserving deal deadlines during the course of a dispute over deal terms is not unique or novel, it does appear that Forescout’s effort may be the first to use such a tactic in a MAE dispute. We will have to see how this dispute plays out, including our expectation that Advent will seek a competing declaratory judgment that there has been a MAE that justifies termination, but it does appear that, based on Forescout’s claims, equitable relief could be appropriate to toll the drop-dead date, so that its expiration is not fait accompli – resulting in termination of the deal before the court can consider the dispute. As Forescout notes, Advent should not be able to terminate at the drop-dead date where failure to close before such date is due to Advent’s breach, and further, Advent should not be able to use court time constraints as a weapon to run out the clock before the drop-dead date. On the other hand, the bar is high to justify a TRO, and Forescout will likely need to show that monetary damages, including the sizeable reverse break-up fee payable by Advent, would not be an adequate remedy if it is ultimately determined that Advent breached the merger agreement.
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 See, for example, Borealis Power Holdings Inc. v. Hunt Strategic Util Inv., L.L.C., 2020 Del. Ch. LEXIS 25 ; 2020 WL 363670.