In a surprising turn of events, Canadian private equity firm PartnerOne has acquired mobile app testing startup HeadSpin for a staggering $28.2 million. The acquisition was revealed by TechCrunch last week, citing documents that showcased the financial struggles faced by HeadSpin.
HeadSpin’s Troubled History
Despite its impressive revenue figures, HeadSpin’s founder, Manish Lachwani, was sentenced to 18 months in prison earlier this year for two counts of wire fraud and one count of securities fraud. The company had previously raised $117 million from investors including Google Ventures, ICONIQ Capital, Dell Technologies Ventures, Battery Ventures, Felicis, and Tiger Global.
However, the allegations of fraud led to a significant drop in the company’s valuation, with its valuation being slashed by about two-thirds to $302 million from its peak of $1.1 billion during its Series C round in February 2020.
Financial Struggles
The documents viewed by TechCrunch revealed that HeadSpin’s revenue for 2023 was a respectable $21 million, while its Q1 2024 revenue stood at $5 million. Despite these figures, the company struggled to attract new investors and was forced to engage investment bank Shea & Company to help with selling the business.
In late 2022, HeadSpin attempted to raise a new round of equity or debt from outside investors but was unable to do so. The company ended up raising an $11.4 million convertible note from existing investors, but its further attempts to secure additional financing failed.
PartnerOne’s Acquisition
PartnerOne paid $28.2 million for HeadSpin, valuing the company at about 1.4 times revenue. This is lower than the median M&A transaction multiple for deals announced or closed in Q1 2024, which stood at 1.6 times, according to PitchBook data analysis.
New Leadership
PartnerOne’s CFO, Jonathan Dionne, stated that HeadSpin’s new CEO, COO, and CTO all left the company post-acquisition and received "very generous packages" as part of the transaction. However, most former employees were not so fortunate, with TechCrunch reporting earlier that they received nothing for their stock options.
Conclusion
The acquisition of HeadSpin by PartnerOne marks a significant turn in the company’s history. Despite its financial struggles and troubled past, the company still managed to secure a substantial valuation. As the tech industry continues to evolve, it will be interesting to see how companies like HeadSpin adapt and thrive in an increasingly competitive market.
HeadSpin: A Look at Its Financials
- Revenue (2023): $21 million
- Q1 2024 revenue: $5 million
- Valuation (peak): $1.1 billion
- Valuation (post-acquisition): $302 million
PartnerOne’s Acquisition of HeadSpin: Key Takeaways
- PartnerOne paid $28.2 million for HeadSpin, valuing the company at about 1.4 times revenue.
- The median M&A transaction multiple for deals announced or closed in Q1 2024 stood at 1.6 times.
- Most former employees received nothing for their stock options.
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