By Brian Womack – Staff
Writer, Dallas Business Journal Jan 21, 2020
A founder of an
Irving software company has gone to court to stop his company from making an
acquisition – and it’s worked so far.
A judge in
Delaware has temporarily blocked a deal that DealerSocket has made to acquire
Auto/Mate, according to a filing with the Chancery court that was posted on
Bloomberg Law. The acquisition was first announced earlier this year on Jan. 6.
The judge's
decision to block the deal temporarily came after Brad Perry, a founder of the
company, brought a suit against investment firm Vista Equity
Partners and DealerSocket board members, including Vista Equity
co-founder Brian Sheth.
Perry sought a
temporary restraining order from the court for the purchase of Auto/Mate and/or
the issuance of more than $260 million in shares, the suit said.
Perry, also
claiming to derivatively act on behalf of DealerSocket in the suit, is a
minority shareholder and board member at the company along with Jonathan Ord,
another founder.
Vista didn't
immediately comment on the suit.
Vista invested
in DealerSocket in 2014, more than a decade after it was founded, the suit
said. The investment firm became the largest shareholder and its designees
wouldhold the majority of the seats on the board, the suit said.
Yet Vista
allegedly has used its control over the board to secretly ”negotiate, approve
and consummate a set of voidable, fraudulent, and self-interested transactions
that harm DealerSocket and all of its minority shareholders,” the suit said.
Perry said
"Vista-interested" board members had said they were passing on the
deal for Auto/Mate last year. But that changed, the suit said. On Dec.
27, "a board meeting was noticed to vote on whether to purchase"
Auto/Mate, it said. An announcement of the deal would happen within
about two weeks of that vote.
The suit
alleges that Vista and the Vista interested directors hid "months long
fraud" and "caused and continued to cause DealerSocket to withhold
critical information" from the company's co-founders.
“This
stonewalling continues even after DealerSocket and the board have ignored more
than 50 demands for information,” according to the suit.
The case in
which Parry was named plaintiff was filed on Jan. 14 and said it was an urgent
matter since the deal for Auto/Mate had not yet closed.
During the
process, the suite claims that the valuation of DealerSocket was changing,
reaching as high as $499 million. That was up from $387 million at the time of
the investment by Vista in 2014. It fell to less than $30 million at one point,
the suit said.
“Vista was
manipulating DealerSocket’s valuation to suit its needs; i.e., high valuations
when Vista needed to show growth and low valuations when Vista wanted to
purchase shares at cheaper prices,” it said.
A transaction
at one point sought to “wipe out the interests of every minority shareholder,”
the suit said.
With an email,
one of the defendants, David Breach, appeared to acknowledge wrongdoing, the
suit said as it discussed the effort to keep the minority shareholder board
members “in the dark.”
The suit
alleged Breach accidentally included the minority-shareholder board members,
Perry and Ord, in an email that said “he doesn’t want to give these guys a
process argument."
The temporary
restraining order on the Auto/Mate deal, made on Jan. 16, lasts for 10 days.
“Both the
plaintiff (and all minority shareholders) and DealerSocket will suffer
irreparable harm under Delaware law by the dilution of share value and voting
power," the suit said.
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