Datto’s SEC 8-K Filing On Kaseya Deal: Termination Fees, Alternative Suitor Scenarios

Because Kaseya is smaller than Datto, it has to put together a wide-ranging coalition of financial and investor sources to fund the acquisition. Datto for the most part is owned by well over 100 institutional investors.

Kaseya’s Funding For The Acquisition

Kaseya’s planned acquisition of rival MSP platform developer Datto is a bold move for the Miami-based company. Datto, which on the last day of trading before the acquisition was announced, had a market capitalization of about $4.7 billion. Because of the $35.50-per-share offer Kaseya is making, Norwalk, Conn.-based Datto currently has a market capitalization of $5.7 billion.

Datto in October 2020 went public with the stock ticker symbol “MSP” to represent its target market. Almost 90 percent of the company is owned by institutional investors, with one company accounting for a 70 percent stake. To acquire Datto, Kaseya is going to have to depend on multiple investors and financial institutions to get the kind of funding it needs to acquire its larger rival.

To understand the funding, CRN dug into Datto’s SEC Form 8-K, which was filed on April 13. The filing details where Kaseya is getting the funding, under what circumstances the acquisition deal could potentially get called off, and the termination fees both companies might face if the deal does not close as planned.

Kaseya has a chance to change the dynamics of the MSP business by building what would become the largest MSP platform developer if it closes its Datto acquisition. Here are some of the details surrounding the deal.

Who Owns Datto Now?

Datto, in its SEC filing, said that 164.7 million shares of the company’s common stock were outstanding. According to MarketWatch, 89.97 percent of those shares are owned by a total of 132 institutional investors of which 14 sold out of their positions as of Dec. 31.

The biggest shareholder by far, and the company that is set to reap the lion’s share of benefits from the sale of Datto, is Vista Equity Partners Management, which owns just shy of 70 percent of the company. Vista in late 2017 acquired Datto and merged it with Autotask to turn Datto into an MSP-focused platform developer.

No other institutional investor comes even close. The next largest institutional investor in Datto is Dragoneer Investment Group, with a share of 2.3 percent.

Kaseya Relying On A Number Of Investors

To make the acquisition work, Kaseya will be relying on equity sale and debt financing commitments from a number of investors, according to the SEC filing, including:

• Insight Venture Management will provide an equity contribution of $2.7 billion and has agreed to pay for part of any termination fees and some Datto expenses. Insight Venture Management, doing business as Insight Venture Partners, has a history with Kaseya. The investment company in June 2013 and May 2019 made unspecified investments in Kaseya. Insight Venture’s portfolio includes a wide range of technology companies, including some with a strong channel focus such as Veeam, Calamu, OwnBackup, BMC and Kaseya’s Unitrends.

• Several investors are coming together to provide debt financing to Kaseya that includes $3.3 billion in a senior secured initial term loan, a $200 million senior secured delay draw term loan and a $200 million senior secured revolving loan. Those investors include Golub Capital Markets, Blackstone Alternative Credit Advisors, Blackstone Holdings Finance, Ares Capital Management, Oak Hill Advisors, Owl Rock Capital Advisors and Carlyle Global Credit Investment Management.

• A number of unnamed institutional investors have committed to purchase preferred equity interests in Kaseya totaling $1.0 billion.

Termination Period And Fees

Kaseya and Datto have agreed to an “outside date” of Nov. 11, 2022, at which time the merger agreement between the two will expire if it has not yet been closed. However, the two can agree to an extension until April 11, 2023. The agreement is also terminated if Datto’s stockholders do not provide written consent for the agreement. Datto can also terminate the merger agreement if another potential acquiring company enters into a definitive agreement to acquire Datto at terms more favorable than Kaseya’s current offer.

Datto will be on the hook for a termination fee of $185,665,475 payable to Kaseya if Datto breaks the terms of the agreement and within a year enters into an agreement to be acquired by another company, or if Kaseya ends the agreement because Datto’s board of directors changes its recommendation to be acquired.

Kaseya will be liable for a termination fee of $371,330,950 should Datto terminate the agreement because Kaseya violated its terms, if Kaseya fails to close on the acquisition after Datto meets all its requirements, or if either Datto or Kaseya terminate the merger agreement because Kaseya failed to close on the transaction.

Datto On Discussing Alternative Suitors

Datto has agreed to not discuss potential acquisitions by any other companies than Kaseya.

“From 11:59 p.m., Eastern Time, on April 11, 2022, until the Effective Time [when the deal closes], [Datto] agrees not to solicit or engage in discussions or negotiations regarding any alternative business combination transaction,” Datto wrote in the SEC filing.

However, Datto is allowed to talk with other parties that reach out to any companies that might come in with a superior proposal or a proposal that might lead to a superior proposal as long as it lets Kaseya know about any non-public information it provides other suitors.