Boathouse Capital’s Purchase of InfoSec: A Lesson in Misrepresentation of M&A Rollover Equity Value

An acquiring company misrepresented its financial position to induce the target into placing a portion of the sales price into rollover equity.

PE fund Boathouse Capital purchased cybersecurity company InfoSec Learning, Inc. (InfoSec) in 2023 via a combination of cash, earnouts, and equity in Boathouse Capital’s acquiring portfolio company ACI Learning Holdings, LLC (ACI). But ACI misrepresented its financial position to induce InfoSec into an equity rollover purchase and then diluted InfoSec’s equity position as a result of Boathouse Capital’s continuation fund investment into ACI.

In James T. Kowatch vs. ACI Learning Holdings, LLC, decided on August 13, 2026, Delaware Vice Chancellor Rennie granted the owners of InfoSec to proceed on one of their fraud claims because the Stock Purchase Agreement did not contain anti-reliance language, but it rejected the claim regarding dilution.

During the plaintiff’s own diligence, ACI presented an investment workbook that showed EBITDA of $14.1MM for 2022 and trailing 12-month EBITDA of $13.9MM, which ACI restated to $6.9MM and $8.3MM, respectively, after closing. Further, a government program, which comprised 40% of ACI’s revenue was going to end in 2024; while the defendants learned this prior to the LOI, it was never disclosed to the plaintiffs. The court found that Boathouse Capital either knew the information in the investment workbook and around its revenue presented to InfoSec was false or were reckless as to this, inducing the InfoSec owners into a rollover equity purchase “valued” at $4MM.

In spite of the defendants’ conduct, they still had somewhat of an out. The court said,

“Indeed, the “core requirement” under Abry Partners (and its progeny) for a party to waive its extra-contractual fraud claims is that the agreement must contain an affirmative statement by that party disclaiming reliance on any representations outside the four corners of the governing contract.”

Here, the Stock Purchase Agreement did not contain an anti-reliance provision. Namely, the owners of InfoSec must have affirmatively stated they did not rely on any extra-contractual representations of ACI in order for ACI and Boathouse to satisfy anti-reliance requirements. Also, the court found that the plaintiffs did not have a claim against Boathouse or ACI on the continuation fund’s dilution of the rollover equity.

Sellers should come into a transaction with rollover equity with eyes wide open. Any PE will have first loyalty to its LPs and returning capital to them in any waterfall. On the buy-side, buyers failed to adequately button up the transaction with anti-reliance clauses across all agreements. They are now left to resolve their dispute in court.

Jerome Fogel is a founding partner of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as a general counsel to privately held companies with a specialty in mergers and acquisitions.

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