In a significant ruling for private equity dealmaking, the Delaware Court of Chancery has dismissed a stockholder lawsuit challenging Vista Equity Partners' $4.6 billion take-private of cybersecurity firm KnowBe4. Chancellor Kathaleen McCormick's May 27 decision rejected claims that KKR & Co., Elephant Partners, and KnowBe4 founder Sjoerd Sjouwerman acted as a control group to push through the transaction with inadequate disclosures.
The plaintiffs, former KnowBe4 Class A stockholders Bill Le Clair and Joseph Pospisil, alleged that the trio breached fiduciary duties by coordinating their rollover of equity into the deal. However, the court found insufficient evidence of a control group, noting that KKR and Elephant invested in KnowBe4 three years apart and made independent rollover decisions. KKR varied its rollover amount, while Elephant kept its sale fixed, undermining claims of joint action.
KnowBe4's board had structured the deal under the MFW framework, which requires a special committee and a majority-of-the-minority stockholder vote. The special committee, composed of directors Gerhard Watzinger, Kevin Klausmeyer, and Shrikrishna Venkataraman, retained independent legal and financial advisors. The minority vote was overwhelming, with approximately 99% approval.
Even if entire fairness applied due to director conflicts, the court held that the stockholder vote cleansed the deal under Corwin v. KKR Financial Holdings LLC. Plaintiffs pointed to five alleged disclosure gaps, including ties between special committee members and KKR or Vista, and the financial advisor's investments in KKR and its portfolio companies totaling roughly $200 million and $350 million, respectively. None were deemed material.
Chancellor McCormick distinguished the Delaware Supreme Court's recent Brookfield ruling, where the bank held a half-billion-dollar position in the company's controller. Here, KKR was a minority stockholder rolling shares, not the controller or counterparty, and the special committee had walled KKR off from Vista negotiations. The undisclosed investments did not alter the total mix of information needed for stockholders to vote.
For wealth-management compliance teams and deal counsel, the ruling reinforces the protective power of a clean MFW process. A special committee kept independent from rollover investors, combined with a fully informed minority vote, can insulate a transaction even when a major sponsor like KKR participates and the banker has sizable side investments tied to that sponsor. The court treated KKR's minority rollover status as the doctrinal pivot, not its size.
The decision comes amid heightened scrutiny of private equity transactions and fiduciary duties. Advisors should note that parallel interests alone do not create a control group, and robust procedural safeguards remain critical. For more on how private markets are evolving, see Private Markets Test Advisor Discipline as Liquidity Risks and Return Premiums Vary Widely and SEC Enforcement Chief Woodcock Warns Private Funds on Fees, Conflicts, and Liquidity Risks.
