Irish distribution giant DCC has “weaponized” its internal audit team to find ways to reduce earn-out payments due after its multimillion-dollar takeover of US firm Stampede, the former claim New York based company owner.
evin Kelly and Mark Wilkins – who sold Stampede Global Holdings to DCC in 2018 – allege in a lawsuit that DCC owes them more than $24 million in earnout payments under the terms of the acquisition. The lawsuit was filed in New York against DCC Technology Holdings and a UK subsidiary.
They allege that DCC executives took a “systematic approach” to reducing earn-out payments to lower the price paid for Stampede, a distributor of professional audiovisual equipment.
And the pair have also made a number of other scathing allegations regarding DCC’s labor practices.
They have accused DCC of using a top executive bonus structure that encourages them to “hide gains” so that those gains can be included in the income statement in a later period when they are “used to achieve the monthly or annual budgets are required”.
DCC, of which Donal Murphy is CEO, is a FTSE 100 company which posted sales of £17.7bn (€20.9bn) and profits of £590m (€697m) last year. scored
Negotiations surrounding the Stampede acquisition lasted for months.
“A significant portion of these negotiations concerned the earn-out payments that plaintiffs would receive upon closing,” attorneys for Mr. Kelly and Mr. Wilkins have alleged in a lawsuit just filed against DCC.
They said about half of the negotiation time was spent on earn-out potential, “resulting in an extraordinarily complex formula.”
Mr Kelly and Mr Wilkins allege that DCC executive Steve Casey “requested a dramatic change in the earn-out payment” just prior to closing the deal. These included extending the earn-out period from two to three years and adjusting the potential earn-out and baseline payment, they claim.
“During the earn-out period, the earn-out group’s business prospered,” Kelly and Wilkins allege in their lawsuit against DCC.
“Earnout group revenue increased from approximately $289 million to approximately $444 million. Earnings before interest and taxes increased to about $12.4 million from about $8.1 million,” they say. “Despite this undeniable success, DCC has worked diligently to reduce plaintiffs’ earn-out payments regardless of the terms of the SPA [Stock Purchase Agreement]’ the duo claims.
As of June 2018, the aggregate valuation for the earn-out payments was approximately US$13 million.
“DCC now claims that the total payments due for all earn-out payments are less than $10 million, despite the earn-out group’s performance exceeding all growth expectations during the earn-out period,” the former wrote Stampede owners in their claims lawsuit.
Mr. Kelly continued as CEO of Stampede after the acquisition but left the company last year. DCC manager Clive Fitzharris said at the time Mr Kelly had “left a legacy of which he can be really proud”.
DCC was asked to comment on the case but declined.
https://www.independent.ie/business/irish/dcc-sued-for-24m-over-us-acquisition-by-former-owners-41829119.html DCC sued $24 million over US takeover by former owners