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 would hold 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 suit 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.”
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