Delaware Chancery tosses stockholder suit over Vista's $4.6B KnowBe4 take-private with KKR

Delaware Chancery has tossed a stockholder challenge to Vista Equity Partners' $4.6 billion take-private of cybersecurity firm KnowBe4.

In a May 27 ruling, Chancellor McCormick dismissed claims brought by former KnowBe4 Class A stockholders Bill Le Clair and Joseph Pospisil. They had argued that KKR & Co. Inc., Elephant Partners, and KnowBe4 founder Sjoerd Sjouwerman teamed up as a control group, breached their fiduciary duties to the class, and then pushed the deal through with thin disclosures. The court did not buy it.

For deal lawyers, fund managers, and compliance teams at wealth firms watching Delaware closely, the decision is a useful read on what a stockholder suit needs to clear a motion to dismiss in a private equity rollover deal.

The setup is familiar. Vista, the buyer, wanted Sjouwerman, KKR, and Elephant to roll a chunk of their equity into the deal. The three combined held a hefty slice of KnowBe4's voting power – Sjouwerman about 4.2 percent, KKR about 26.4 percent, and Elephant about 37.5 percent as of the record date. At one point, Vista's $24.60 per share offer came with a condition that the trio collectively roll over at least $675 million in equity. The final price landed at $24.90 per share, with rollovers worth $682 million. Total equity value: $4.6 billion.

KnowBe4's board built in protections early. It formed a special committee of three directors – Gerhard Watzinger, Kevin Klausmeyer, and Shrikrishna Venkataraman – retained its own legal and financial advisors, and ran the deal under the MFW framework. That framework requires a special committee plus a majority-of-the-minority stockholder vote. The vote was lopsided. About 99 percent of the minority approved.

McCormick ruled that the plaintiffs did not adequately plead a control group. Separate investments, parallel rollover decisions, and a handful of early Vista meetings were not enough. The court framed the alleged ties as parallel interests rather than a legally significant connection. Elephant and KKR first invested in KnowBe4 three years apart. Elephant kept its sale amount fixed while KKR varied its rollover. That, the court said, is not the long, documented joint investment history Delaware demands.

Even assuming entire fairness applied because of director conflicts, the court said the stockholder vote cleansed the deal under Corwin v. KKR Financial Holdings LLC. The plaintiffs flagged five alleged disclosure gaps, including the special committee members' ties to KKR and Vista, and the financial advisor's investments in KKR and KKR portfolio companies of roughly $200 million and $350 million respectively. None stuck.

On the financial advisor's conflicts, McCormick distinguished the Delaware Supreme Court's recent Brookfield ruling, where the bank had a roughly half-billion-dollar position in the company's controller. Here, KKR was a minority stockholder rolling its shares, not the controller or the counterparty, and the special committee had walled KKR off from its talks with Vista. The undisclosed investments did not, in the court's view, change the total mix of information stockholders needed to vote.

For compliance officers and deal counsel at wealth firms, the takeaway is clear. A clean MFW process, a special committee kept walled off from rollover investors, and a fully informed minority vote can still carry a $4.6 billion deal across the finish line – even when a major sponsor like KKR rolls in and the banker has sizable side investments tied to that sponsor. The court treated KKR's status as a minority rollover stockholder, not a controller, as the doctrinal pivot.

A third count, alleging the deal violated KnowBe4's charter equal-treatment provision, was dismissed because the plaintiffs did not brief it.