Canadian Private Equity Firm PartnerOne Pays $28.2 Million for HeadSpin Amid Fraud Allegations
In a significant acquisition deal, Canadian private equity firm PartnerOne has paid $28.2 million for HeadSpin, a mobile app testing startup that was embroiled in a major fraud scandal earlier this year. The sale was reported by TechCrunch last week, citing documents viewed by the publication.
HeadSpin’s Turbulent Past
HeadSpin’s founder, Manish Lachwani, was sentenced to 18 months in prison and ordered to pay restitution after pleading guilty to two counts of wire fraud and one count of securities fraud in April. The company had raised $117 million from investors including Google Ventures, ICONIQ Capital, Dell Technologies Ventures, Battery Ventures, Felicis, and Tiger Global prior to the allegations.
In 2020, HeadSpin’s board, which included Palo Alto Networks CEO Nikesh Arora, learned that Lachwani had overstated the company’s revenue by nearly four times. As a result, Lachwani was pushed to resign from his position as CEO. Arora resigned from the board in January.
Valuation and Revenue
The documents viewed by TechCrunch revealed that HeadSpin’s 2023 revenue stood at $21 million, while its Q1 2024 revenue was $5 million. These figures suggest that PartnerOne valued HeadSpin at approximately 1.4 times revenue. This valuation is significantly lower than the median M&A transaction multiple for deals announced or closed in Q1 2024, which stood at 1.6 times, according to PitchBook data analysis.
Sale Process
HeadSpin attempted to raise a new round of equity or debt from outside investors in late 2022 but was unable to attract new backers. The company ended up raising an $11.4 million convertible note from existing investors. However, further attempts to secure additional financing failed, forcing the company to engage investment bank Shea & Company for help with selling the business.
PartnerOne’s Acquisition
In a statement last week, PartnerOne told TechCrunch that HeadSpin’s new CEO, COO, and CTO all left the company post-acquisition. The firm’s CFO, Jonathan Dionne, stated that "they all received very generous packages as part of the transaction." However, most former employees did not receive anything for their stock options, vested or unvested.
Impact on Employees
The acquisition has left many employees wondering about their future prospects. According to TechCrunch, most former employees did not receive any compensation for their stock options, which were either vested or unvested. This has led to concerns among industry observers about the treatment of employees in M&A deals.
Conclusion
The acquisition of HeadSpin by PartnerOne marks a significant development in the tech industry’s ongoing struggles with fraud and corporate governance. The deal highlights the challenges faced by startups in securing funding and navigating complex regulatory environments. As the industry continues to evolve, it is essential for companies to prioritize transparency and accountability to avoid similar scandals in the future.
Related Topics
- HeadSpin
- ICONIQ Capital
- Mergers and Acquisitions
- PartnerOne
- Startups
- Venture Capital
About the Author
Marina Temkin is a venture capital and startups reporter at TechCrunch. Prior to joining TechCrunch, she wrote about VC for PitchBook and Venture Capital Journal. Earlier in her career, Marina was a financial analyst and earned a CFA charterholder designation.
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