Thoma Bravo seizes on pay issue to lower Anaplan buyout price

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

California-based Anaplan disclosed on Friday that Thoma Bravo had asserted that the company had violated its merger agreement by overpaying new workers, leading the enterprise software group to agree to a 3 per cent reduction in the price of the buyout.

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

But Friday’s filing offered fuller details of a dispute that erupted privately in May between Anaplan and Thoma Bravo, which has emerged as one of the dominant buyout groups that focus on technology.

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

Contractual fights over signed — but yet-to-close — buyout deals are common in periods of stock market volatility, with the technology-focused Nasdaq index having fallen 18 per cent since Thoma Bravo agreed to acquire the software company.

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

On May 23, Anaplan’s chief executive Frank Calderoni informed Thoma Bravo that the company expected to hand $137mn in “merit-based and new hire grants” to hundreds of new workers, $32mn more than the amount outlined in its merger agreement.

Calderoni argued that the higher figure was still in keeping with running the company in the “ordinary course”, as the contract dictated, while also arguing that the overrun was a “minor amount” that was ” immaterial in relation to the size of its business”.

While the Anaplan chief later offered to reduce pay grants to himself and other senior executives, Thoma Bravo was unmoved and the firm feared that attempts to “remediate the actions would risk damaging employee morale”.

Anaplan’s board of directors eventually accepted the idea of a “modest price reduction”. On June 3, Thoma Bravo offered to pay $61.00, which in the following days was negotiated up to the $63.75. The reduced purchase price will still cost Anaplan shareholders more than $400mn.

As a quid pro quo, Thoma Bravo has raised the termination fee it would owe if the deal collapses entirely from $586mn to $1bn, while agreeing to tighten several contractual terms, making it harder for the private equity firm to renegotiate the deal again.

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

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

Orlando Bravo, the billionaire Thoma Bravo co-founder, has tweeted regularly about the recent fall in the valuations of technology companies. On June 3, he wrote: “The software industry is still so early. Love how so many great innovators are now embracing cost reductions, EBITDA, and FCF. The best will adapt quickly and build incredible businesses.”