Securities Regulation Daily Wrap Up, MERGERS AND ACQUISITIONS—Del. Ch.: PE firm wins damages after acquisition underperformed, (Feb 24, 2025)

By Anne Sherry, J.D.

Whether a customer’s threats to leave were real or simply posturing, the sellers’ representation that no customer had given notice was unconditional.

A private equity firm, Comvest Partners, proved that its acquisition target failed to disclose the imminent loss of two significant customers, causing nearly $3 million in damages. The Delaware Court of Chancery also held against the sellers on their counterclaim alleging that the buyer had intentionally withheld billings to support its breach-of-contract action and avoid paying part of the merger consideration. The buyer withheld bills to meet federal requirements for invoices, the court found (In re Dura Medic Holdings, Inc. Consolidated Litigation, No. 2019-0474-JTL (Del. Ch. Feb. 20, 2025)).

Comvest in 2018 acquired a private medical-equipment company, Dura Medic, Inc., through a reverse triangular merger. During the deal negotiations, the company struggled with customer attrition and a high error rate in claims audits. Notably, shortly before the merger, Dura received notice from two of its largest clients that they would either terminate their contract (in the case of its single largest client by revenue) or reduce Dura’s coverage from five hospital sites to four.

In the merger agreement, Dura represented that its financial statements were true, complete and accurate; that it had complied with all laws for three years before the merger, except as separately disclosed; and that no counterparty to a material contract had notified the company that it intended to terminate or restrict its contract during the 12 months prior to closing.

The company continued to do poorly, and only half a year after the merger closed, Comvest retained litigation counsel. The private equity firm brought a breach-of-contract action alleging that Dura had breached its representations in the merger agreement.

The court determined that the sellers did not breach the representation that Dura’s financial statements were true, complete and accurate. The gross-to-net ratio in the financial statements was a forward-looking estimate, and the buyer failed to prove that the estimate did not represent the sellers’ actual, good-faith belief about what future collections would be. The buyer could have bargained for a warranty of the actual level of collections, but having failed to, it had no claim for breach based on the financial statements’ estimates.

However, the buyer proved a “straightforward breach” of the representation that no material customer had given notice. The court rejected the sellers’ argument that the customers’ emails merely represented a rumor and that customers often threatened to leave but were ultimately convinced to stay. The representation was not conditioned on any of those factors. The sellers were liable to the buyer for nearly $2.9 million in damages based on this misrepresentation.

A much smaller impact, but still a breach, was the sellers’ representation that it had complied with all laws other than those disclosed. The sellers did not disclose the existence of several agency audits, causing $100,000 in damages. This was a significant reduction from the $550,000 in indemnification of fees that the buyer sought to recover.

The case is No. 2019-0474-JTL.

Judge: Laster, J.

Attorneys: Raymond J. DiCamillo (Richards, Layton & Finger, P.A.) for Greg Bailey, Karen Lee Bryant, Gary Lee Campbell, Selle D’Shanna Campbell, Robert Chicoine, Crown Predator Holdings 1, LLC, DM Seller Representative LLC, James T. Doody, Grant Eckberg, Tim Einwechter, Jessica Evans, Deborah Fedorak, Rick Ferreira, Fisher Holdings LLC, G&D Progressive Services, Inc., Kevin J. Harrington, Sherrie Horton, Becki Jaynes, KLBK Investments, LLC, Lewin Investments, LLC, Marc Mazur, Steven Mintz, Steve E. Nelson, Don Newton, Mark Newton, Stephen J. Nicholas, MD, George Shelton Ochsner, Stephen Ochsner, Jason Pauletto, Richard A. Danzig Profit Sharing Plan & Trust, Martin J. Rucidlo, Kim Sauber, Gavin Scotti, Morton Stayton, Steve E. Nelson Trust, Symcox Family Limited Partnership, Jay Symcox, Ellen Walsh, WIU Foundation and Edward J. Zecchini. David S. Eagle (Klehr Harrison Harvey Branzburg LLP) for Jonathan Black, Maneesh Chawla, Comvest Investment Partners Holdings, LLC, Dura Medic Holdings, Inc., Dura Medic, Inc., Dura Medic Parent Holdings, LLC and Roger Marrero. Steven L. Caponi (K&L Gates LLP) for AdaptHealth, LLC, and DM Acquisition Sub LLC.

Companies: Crown Predator Holdings 1, LLC; DM Seller Representative LLC; Fisher Holdings LLC; G&D Progressive Services, Inc.; KLBK Investments, LLC; Lewin Investments, LLC; Richard A. Danzig Profit Sharing Plan & Trust; Symcox Family Limited Partnership; WIU Foundation; Comvest Investment Partners Holdings, LLC; Dura Medic Holdings, Inc.; Dura Medic, Inc.; Dura Medic Parent Holdings, LLC; AdaptHealth, LLC; DM Acquisition Sub LLC

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