Shareholders in software company Mindbody are suing the company for breach of fiduciary duty. Plaintiffs claim that the company’s proposed acquisition by Vista Equity Partners provides plenty of compensation for Mindbody executives and the board of directors but leaves stockholders out in the cold.
Vista Equity Partners is a private equity company that focuses on acquiring promising software and tech companies like Mindbody. In December 2018, Vista and Mindbody reached an acquisition agreement that is valued at $1.9 billion.
The next month, public shareholder in Mindbody Joseph Schmit filed a lawsuit against the companies in San Luis Obispo Superior Court. Among the claims, Schmit alleges that Mindbody and its board “breached their fiduciary duties of loyalty, good faith, due care and disclosure” with their acceptance of the acquisition deal.
Schmit believes that the deal was engineered to benefit Mindbody executives and board members without giving appropriate consideration to the financial interests of shareholders. The company went public in 2015, and stocks traded at an all-time high of $43.85 in May 2018. However, the acquisition deal will make the company private again. Vista will pay just $36.50 per share.
Schmit argues that Mindbody is a company on the rise. While the stocks may be trading today at approximately $36.50 per share, he believes that profits will skyrocket. The acquisition locks out shareholders from financially benefitting from that profit.
In the lawsuit, Schmit details that Mindbody executives and board members will receive huge payouts because of the deal. One executive stands to take home $61 million while another may receive just over $11 million. Several other executives and board members stand to earn a few million dollars each.
Qatalyst Partners LP, an investment bank, advised Mindbody on the terms of the agreement and whether or not it was fair to all involved. The bank also acted as an adviser to Apptio Inc. which was acquired by Vista in November 2018.
Several other law firms are looking for plaintiffs who feel they may have been injured by this deal, which may mean that Mindbody and Vista could be facing a class action lawsuit.