Canadian private equity firm PartnerOne has acquired HeadSpin in a bargain sale, TechCrunch has learned exclusively, and sources say most of the company's former employees received nothing in return for their options. HeadSpin is a mobile app testing company whose founder was sentenced to prison for fraud earlier this year.
Since its founding in 2015, HeadSpin has raised a total of $117 million from investors including Google Ventures, Iconiq, Dell Technologies Ventures, Battery Ventures, Felicis, and Tiger Global. The company was last valued at $1.1 billion in 2020. One former employee, who asked not to be named, told TechCrunch that the company's ARR was around $20 million, and the acquisition price was likely between $20 million and $40 million. Another former employee told TechCrunch that the sale price was thought to be “cents on the dollar.” Ironically, at the time of its $20 million Series B in 2018, investors were touting the company as “one of the fastest-growing software companies of all time.”
Montreal-based PartnerOne confirmed the acquisition to its website and to TechCrunch, but did not disclose the purchase price.
But HeadSpin's former executives did not profit from the private equity buyout, several former employees said.
In an email sent to employees, the company called HeadSpin's new relationship with the private equity firm “great news,” then 10 minutes later, employees received an email saying all options, both vested and unvested, had been canceled because they were “behind the scenes,” according to documents viewed by TechCrunch.
The email said all options in relation to the acquisition were “unconditionally cancelled.”
The email did not disclose the terms of the deal to employees, but by announcing that the options would be worth less than their value, it suggests that the purchase price for the company's shares was lower than the exercise price that employees were entitled to pay.
“The CEO, COO and CTO were all fired that day, and one can only assume they received benefits,” one source said, “but some employees who had been there for nine or 10 years and worked 15-hour days to weather the previous founder's ordeal didn't receive anything.”
PartnerOne CFO Jonathan Dion confirmed to TechCrunch that HeadSpin's executive team had left the company and received “very generous treatment,” but suggested they hadn't been fired. (See his full statement below.) He claimed PartnerOne only paid a “nominal amount” for HeadSpin, and said, “The transaction price and terms were agreed to by the vast majority of our shareholders and creditors, many of whom are the world's largest technology companies.”
HeadSpin founder Manish Rachwani pleaded guilty in April to two counts of wire fraud and one count of securities fraud and was sentenced to 18 months in prison. He will also be placed on probation for three years after his release and was ordered to pay a $1 million fine for lying to investors. A restitution hearing is scheduled for July 31.
Rachwani led the company as CEO until May 2020, when he was succeeded by Rajeev Butani.
The New York Times reported that Rachwani “inflated HeadSpin's revenues by nearly four times, made false claims about its customers and created fake invoices to cover it up.”
PartnerOne's Dionne told TechCrunch that HeadSpin was a victim of the actions of its former CEO, and that the management team he brought in when his company acquired the company worked hard to “make sure everything related to the former CEO is fixed and put right, including returning money to investors who were defrauded.”
Businesses use HeadSpin to test and monitor their apps across different regions and devices, and the company claims that the service helps businesses “ship products faster without end-user issues.”
“I think the previous CEO and other top executives did a good job of getting the company out of the hole the previous CEO created, but overall I think the company wasn't run in the best way,” one employee said. “They were trying to get all these new customers, but they didn't really have a vision for what the company was.”
PartnerOne, on the other hand, believes HeadSpin is a victim of its founder's actions.
“The former CEO's guilty plea puts closure on this matter and demonstrates that this was the action of one person, not the fault of the company itself,” Dionne said. “HeadSpin itself is a victim, not a perpetrator. The CEO's guilty plea proves that.”
Below is PartnerOne CFO Jonathan Dion's full statement to TechCrunch:
“HeadSpin is a great company that unfortunately became a victim of the actions of its former CEO many years ago. Those days are long gone, and the management team at the time we acquired the company (CEO, COO, CTO) was made up of very well-known and reputable people who hired major law firms and advisors to ensure that everything related to the former CEO was fixed and put right, including returning funds to investors who were defrauded. HeadSpin's shareholders supported management's actions, which ensured the company was operated with full transparency and integrity and had very strong safeguards in place to ensure that history would not be repeated. In fact, the way management handled the situation was praised by the SEC for how to handle a situation where a company was the victim of one person's bad behavior.
Partner One only recently learned of HeadSpin, many years after the former CEO's actions. Our focus in due diligence was to ensure that no traces of the former CEO's actions, which were years ago, remained. The former CEO's guilty plea provides definitive closure to this matter and proves that this was the actions of one person and not the company itself. HeadSpin itself was the victim, not the perpetrator. The CEO's guilty plea proves this.
The management team (CEO, COO, CTO) were not fired, but throughout the acquisition process it was planned for them to be moved after the acquisition. They did a great job and fulfilled their roles at HeadSpin. They all received very generous packages as part of the deal.
This transaction was not made for a “nominal amount” and the price and terms were agreed to by a majority of shareholders and creditors, many of whom are the world's largest technology companies. There is no way these large companies would agree to sell a company for less than fair market value. Moreover, the sale process was run by a large investment firm with extensive market reach and a competitive bidding process.
HeadSpin's new management team is comprised of leaders from another Partner One company, Evolving Systems, who have ably assumed leadership of the company and are positioning it very well for the future. These individuals were selected because of the synergies and similarities between each company's markets, technologies and geographic presence. It was truly a perfect match.
HeadSpin has a dedicated team of 200 people, supported by hundreds of additional world-class software engineers at Partner One. HeadSpin customers have reacted very positively to the acquisition news and have already begun expanding their use of HeadSpin products.
Partner One will have a permanent home for HeadSpin because we are not selling the company, and because we are not selling the company, we can make the best long-term decisions for our product and our customers. Partner One has begun plans to invest heavily in HeadSpin, and with the strength of our organization, our customers have more confidence in HeadSpin products than ever before.
With great things happening and the actions of the previous CEO now behind us, that chapter is now closed and the future is extremely bright for HeadSpin, its team and its customers. HeadSpin is a great company with an industry-leading product, and we are proud to lead the company into its next 50 years of growth.”
Editor's note: We've corrected the original headline because Partner One disputes the statement that the sale price was “cents on the dollar.” We've also updated the story to include a statement from the company.
Christine Hall and Marina Temkin contributed to this article.
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