Recent Case: Board Erred In Restricting Participation In Limited Auction To Private Equity Players

Post-signing "window shop" period not adequate to satisfy Revlon duties in the case of a micro-cap, Delaware court rules

In re Netsmart Technologies, Inc. Shareholders Litigation,

This March 14, 2007 Delaware Court of Chancery decision arose from an auction process instigated by Netsmart Technologies, Inc., a NASDAQ-listed micro-cap medical software company. Vice Chancellor Strine, the author of the ruling, was critical of the Netsmart Board’s decision to seek bids from private equity firms only, ignoring possible strategic buyers. An important aspect of the ruling was the Court’s emphasis on the inadequacy of a "one size fits all" approach to structuring an auction process. It held that a process acceptable in a large-cap company context might not be appropriate for a smaller niche player. In Netsmart’s case, the Board’s decision to provide for a post-signing "window-shop" period – in which strategic buyers or others could