In re Netsmart Techs., Inc. S'holders Litig.

Delaware Court of Chancery · 2007 · Corporations

924 A.2d 171 (Del. Ch. 2007)

Updated August 22, 2026

CorporationsMergers and acquisitionsRevlon dutiesDisclosurecash salehighest value reasonably attainablestrategic buyersprivate equity

Facts

After private equity firms expressed interest following Netsmart's acquisition of CMHC, management and William Blair steered the board toward a rapid, limited auction directed only at seven private equity firms and away from any active outreach to strategic buyers. A Special Committee of independent directors was formed only after that strategy had largely been adopted, and it continued to work closely with management while ultimately recommending a $16.50 per share merger with Insight. The merger agreement included a no-shop, a fiduciary out, and a 3% termination fee, and no topping bid emerged after signing. The proxy described the board's rationale for not contacting strategic buyers and disclosed some projections, but it omitted the final projections William Blair used in its DCF analysis supporting its fairness opinion.

Issue

Whether the plaintiffs showed a reasonable probability of success that Netsmart's board breached its Revlon duties by failing to make any reasonable effort to explore strategic buyer interest before agreeing to a cash sale, and whether the proxy was materially misleading or incomplete for failing to disclose the final projections underlying William Blair's DCF fairness analysis and for its description of the board's deliberations about strategic buyers. Also, whether those showings justified preliminary injunctive relief.

Rule

Once a board decides to sell the company for cash, it must undertake reasonable efforts to secure the highest price realistically achievable and must follow a logically sound process suited to the company's actual market circumstances; there is no single blueprint, but directors must have a reliable evidentiary basis if they forgo an active market canvass. When directors seek stockholder action, they must disclose fully and fairly all material information, including a materially complete and unbiased summary of valuation work relied on, and in a cash-out transaction stockholders would find management's and the financial advisor's best estimates of future cash flows material.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A publicly traded niche logistics software company in Boise agrees to a cash merger with a private equity fund. Before signing, the board contacted only five financial sponsors and did not approach any strategic acquirers, relying instead on a few casual conversations its CEO had with larger industry players four to six years earlier, before the company had doubled in size through acquisitions.

Stockholders sue, arguing the board breached its sale-process duties. Which is the strongest argument for the stockholders?

Explanation. Once a board decides to sell the company for cash, it must undertake reasonable efforts to secure the highest price realistically achievable through a logically sound process tailored to the company’s circumstances. The case rejects reliance on stale, sporadic, unfocused historical contacts as a sufficient basis to exclude strategic buyers entirely. But it also rejects any universal rule requiring a canvass of every possible buyer. The flaw is the absence of reliable contemporary evidence supporting the decision to forgo strategic outreach.