PartnerOne, a Canadian private equity firm, purchased HeadSpin, a mobile app testing startup, for $28.2 million. HeadSpin’s 2023 revenue was $21 million, and its Q1 2024 revenue was $5 million, valuing the company at approximately 1.4 times its revenue.
This valuation is lower than the median M&A transaction multiple of 1.6 times for deals in Q1 2024, based on PitchBook data.
In 2020, HeadSpin’s board discovered that founder Manish Lachwani had overstated the company’s revenue by nearly four times, leading to his resignation.
Lachwani was sentenced to 18 months in prison and ordered to pay restitution after pleading guilty to wire and securities fraud in April.
Before these fraud allegations, HeadSpin had raised $117 million from investors such as Google Ventures and Tiger Global. The company’s valuation dropped from $1.1 billion in February 2020 to $302 million after the fraud was uncovered.
Attempts to raise new equity or debt in late 2022 were unsuccessful, resulting in an $11.4 million convertible note from existing investors. Ultimately, HeadSpin hired Shea & Company to help sell the business.
Following the acquisition by PartnerOne, HeadSpin’s CEO, COO, and CTO left the company, receiving generous packages. However, most former employees received nothing for their stock options, vested or unvested.
