HeadSpin, whose founder is in prison for fraud, sold to PE firm in fire sale, sources say
Reading Time: 4 minutesFormer executives of HeadSpin, however, are not benefiting from the PE buyout, according to several former workers.
The email said in connection with the buyout, that all options would be ‘canceled in exchange for no consideration.’
Although the terms of the deal were not disclosed to employees in this email, by announcing that options would be underwater, the email indicates that the purchase price for the company’s shares was lower than any strike price employees were eligible to pay.
‘The CEO, COO and CTO were all let go that day. We can only speculate they got packages,’ one source said. ‘But some employees who had been there for 9-10 years and weathered the storm though the former founder, working 15 hour days – they got nothing.’
HeadSpin’s founder, Manish Lachwani, was sentenced to 18 months in prison after pleading guilty to two counts of wire fraud and one count of securities fraud in April. He was also ordered to serve three years of supervised release after leaving prison and ordered to pay a $1 million fine for lying to investors. A hearing on restitution was scheduled for July 31.
Lachwani led the company as CEO until May of 2020, when he was replaced by Rajeev Butani.
The New York Times reported that Lachwani inflated ‘HeadSpin’s revenue nearly fourfold, making false claims about its customers and creating fake invoices to cover it up.’
Companies use HeadSpin to test and monitor their apps across various geographies and device. The company claims that it helps businesses ‘ship products faster with zero end-user issues.’
‘I think the former c-level executives, specifically the CEO did a good job getting the company out of the hole that the former CEO created but I think overall the company was not managed in the best way,’ one employee said. ‘They were trying to catch every new customer, not really having a vision for what the company was.’
For its part, PartnerOne believes HeadSpin was a victim of its founder’s actions.
‘The former CEO’s guilty plea definitely closes this matter, and demonstrates that it was one person’s actions, and not the company itself,’ Dionne said. ‘HeadSpin itself was a victim, it was not the culprit. The CEO’s guilty plea proves this.’
Full statement from PartnerOne CFO Jonathan Dionne:
‘HeadSpin is a great company that was unfortunately the victim, many years ago, of the former CEO’s actions. That time is long gone, and the management team (CEO, COO and CTO) in place when we acquired the company consisted of very well known and reputable individuals who engaged major law firms and advisors to ensure that everything in relation to the previous CEO was corrected and made right, including returning money to investors that had been defrauded. HeadSpin shareholders supported the management’s actions which assured that the company was operating with complete transparency and integrity, and with very robust safeguards to ensure that the past would never repeat itself. Actually, the way management handled the situation was praised by the SEC as the way a company should handle a situation where it is the victim of one person’s bad actions.
Partner One only came to know of HeadSpin recently as part of the sale process of the company, and this was many years after the former CEO’s actions. Our focus on the due diligence was to ensure that there were no remnants of the former CEO’s actions which are now many years into the past. The former CEO’s guilty plea definitely closes this matter, and demonstrates that it was one person’s actions, and not the company itself. HeadSpin itself was a victim, it was not the culprit. The CEO’s guilty plea proves this.
The management team (CEO, COO and CTO) were not terminated, but it was rather the plan throughout the acquisition process for them to move on post-acquisition. They did a great job and had accomplished their roles at HeadSpin. They all received very generous packages as part of the transaction.
The transaction was not for ‘pennies on the dollar’, the transaction price and terms were agreed to by the majority of the stockholders and debt holders, many of which are the largest tech companies in the world. There is no way that these major corporations would agree to sell a company for less than its fair market value. Additionally, the sale process was run by a leading investment firm with a widespread market outreach and a competitive bidding process.
The new management team at HeadSpin is composed of leaders from another one of Partner One’s companies, Evolving Systems, who have successfully assumed the leadership of the company and have positioned it very well for the future. These individuals were selected because of the synergies and similarities between the respective companies’ markets, technologies and geographical presence. It was a perfect fit.
HeadSpin has a dedicated team of 200, plus the support of hundreds of the top software engineers in the world from Partner One companies. HeadSpin customers have received news of the acquisition very favorably and have already begun expanding their use of HeadSpin’s products.
Partner One never sells its companies, so HeadSpin now has a forever-home. And because we don’t sell our companies, we make the best long term decisions for our products and our customers. Partner One has begun plans to make significant investment into HeadSpin and with the strength of our organization behind it, customers are more confident than ever in HeadSpin products.
With all the great things happening, and the former CEO’s actions now long into the past, that chapter is closed and the future is extremely bright for HeadSpin, its teams and its customers. HeadSpin is an amazing company with industry-leading products. We are proud to lead it into the next 50 years of growth.’
Editor’s note: Because Partner One disputes the characterization that the sale price was ‘cents on the dollar,’ we have modified the original headline. We also updated the article to include the firm’s statement.
Christine Hall and Marina Temkin contributed to this article.
Ref: techcrunch
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