In Re Swervepay Acquisition, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN RE SWERVEPAY ) Consolidated C.A. No. ACQUISITION, LLC ) 2021-0447-KSJM POST-TRIAL OPINION ADDRESSING LIABILITY AND DAMAGES Date Submitted: July 10, 2025 Date Decided: July 31, 2026 Peter J. Walsh, Jr., Nicholas D. Mozal, Ryan M. Crowley, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Orion Armon, COOLEY LLP, Denver, Colorado; Luke Cadigan, Timothy Cook, COOLEY LLP, Boston, Massachusetts; Caroline Pignatelli, Alessandra Rafalson, Katelyn Kang, COOLEY LLP, New York, New York; Matthew Martinez, COOLEY LLP, San Diego, California; Bradley Levison, Carrie A. Herschman, HERSCHMAN LEVISON PLLC, Chicago, Illinois; Counsel for SPOSC Investment Holdings, LLC, Jaeme Adams, Katrina Adams, and Christopher Hamilton. A. Thompson Bayliss, Caleb Theriot, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Jay P. Lefkowitz, Dan Cellucci, Mary T. Reale, Amal El Bakhar, KIRKLAND & ELLIS LLP, New York, New York; Anna Rotman, KIRKLAND & ELLIS LLP, Houston, Texas; Jeremy Fielding, KIRKLAND & ELLIS LLP, Dallas, Texas; Counsel for OSC Investment, L.P., OSC Investment GP, LLC, New Mountain Capital, LLC, New Mountain Partners V, L.P., New Mountain Investments V, LLC, BSIP OS, LLC, Eir Partners LLC, and Robert Wechsler. McCORMICK, C.  This case arises from an acquisition of a payment processing software and services company, or “PayFac.” The buyers paid cash and stock at close and agreed to make post-closing cash and stock earnout payments contingent on the PayFac achieving financial milestones. For a PayFac’s services, merchants pay the PayFac a percentage of all payments facilitated by the PayFac, or a slice of the overall pie. Payments volume represents the overall pie and is thus a key financial metric for PayFacs. The sellers therefore pressed for information on the buyers’ payments volume before agreeing to the deal. The parties also structured the consideration and revenue-based earnout targets on the buyers’ representations concerning payments volume. Ultimately, the buyers did not have the payments volume they represented to the sellers, the acquired company did not hit the revenue targets, and the sellers never received the earnout payments. Through this lawsuit, the sellers claim that the buyers fraudulently induced them into the acquisition by misrepresenting their payments volume. This post-trial decision enters judgment for the sellers, awarding damages in the amount of the earnouts that they would have received had the misrepresented payments volume been true, as well as the increased value of their rollover units. I. FACTUAL BACKGROUND Trial took place over five days. The record comprises 2,267 trial exhibits, live testimony from twelve fact and three expert witnesses, deposition testimony from three fact witnesses, and 81 stipulations of fact. These are the facts as the court finds them after trial.1 A. New Mountain Diligences Ontario’s Payments Volume Before Acquiring Ontario. Ontario Systems, LLC (“Ontario”) sells software that helps its customers manage their revenue cycle workflow, including accounts receivable.2 In August 1 This decision refers to OSC Investment, L.P.; OSC Investment GP, LLC; New Mountain Capital, LLC; New Mountain Partners V, L.P.; New Mountain Investments V, LLC; BSIP OS, LLC; Eir Partners LLC; and Robert Wechsler collectively as “Buyers” and to SPOSC Investment Holdings, LLC; Jaeme Adams; Katrina Adams; and Christopher Hamilton collectively as “Sellers.” This decision cites to: C.A. No. 2021-0447-KSJM docket entries (by docket “Dkt.” number); trial exhibits (by “JX-” number); the parties’ demonstratives, Dkts. 624, 625 (by “PDX-” number for Sellers and by “DDX-” number for Buyers); the trial transcript, Dkts. 611–14, 626 (“Trial Tr.”); and stipulated facts in Section II of the Parties’ Stipulation and Pre-Trial Order, Dkt. 584 (“PTO”). The parties called the following fact witnesses: Jaeme Adams (SwervePay CEO); Katrina Adams (SwervePay Director of Operations); Brett Carlson (Eir Partners CEO); Alberto “Joe” Delgado (New Mountain Managing Director); Matthew Dubbioso (New Mountain Managing Director); John Durrett (Blue Star Partner); Christopher Hamilton (SwervePay Chief Technical Officer); Daniel Malven (4490 Ventures Partner); Tim O’Brien (Ontario CEO); Michael Oshinsky (New Mountain Vice President); Robert Wechsler (Blue Star President); and Jennifer Zaja (SwervePay Director of Administration). The parties called the following expert witnesses: Yvette Austin (Buyers’ damages expert); Murray Beach (Sellers’ damages expert); Anthony Hayes (Buyers’ payments expert). The parties lodged the deposition transcripts of the witnesses who appeared at trial and called the following witnesses by deposition only: David Franklin (Ontario COO) (by video); Jennifer Richmond (Worldpay Compliance Manager) (by video); and Malcolm Thorne (4490 Ventures Partner) (by video). The deposition transcripts are cited by using the witnesses’ last names and “Dep. Tr.” 2 PTO ¶ 79. Ontario is now named “Finvi.” Id. ¶ 83. 2 2019, private equity firm New Mountain Capital (“New Mountain”) acquired Ontario.3 Eir Partners LLC partnered with New Mountain for the acquisition.4 New Mountain believed that Ontario could increase its revenue by acquiring a PayFac and selling PayFac services as an add-on to its existing software.5 For payment processing software and services provided by PayFacs, merchants pay a percentage of all payments facilitated by the PayFac.6 This fee is called the “merchant discount rate.”7 From that fee, the PayFac passes through payment of: (i) an interchange fee; (ii) a network fee; and (iii) a processor fee (also called the “buy rate”). The portion of the merchant’s payment that the PayFac retains is called the PayFac’s “take rate.” The percentage of the interchange fee, network fee, and buy rate—and thus also the take rate—varies depending on the transaction and the PayFac’s pricing approach.8 But it suffices to say that overall payments volume is a key financial metric for PayFacs.9 To test their investment thesis, New Mountain conducted due diligence on Ontario’s payments volume during the summer of 2019. During that process, New Mountain received a description of Ontario’s payments volume from Ontario’s 3 Id.“A [New Mountain] fund acquired an indirect interest in Ontario by purchasing units in OSC Investment, L.P., which indirectly wholly owned Ontario.” Id. 4 Id. ¶ 82. 5 See JX-290 at 4. 6 PTO ¶ 56. 7 JX-1819 (“Hayes Rebuttal Report”) ¶ 81. 8 Id. ¶ 92. 9 Trial Tr. at 16:5–10 (J. Adams). 3 investment banker, Robert W. Baird & Co. Baird stated that Ontario touched nearly $170 billion in payments volume, about $34 billion of which came from consumer payments.10 New Mountain first received this description through an internal presentation circulated in early July.11 The presentation included a slide showing a preliminary breakdown of Ontario’s “Payments Monetization Opportunity.”12 The slide included a $34 billion figure listed as “Patient Payments that Ontario Facilitates (Direct Contact).”13 This slide combined this figure with $48 million of patient payments “Outside of Ontario Direct Contact” and $88 billion of insurance payments to create a $170 billion figure representing “Total Payments on Ontario Platform.”14 The slide did not identify these figures as estimates. The only figure on the slide that was listed as an “estimate” was $195.8 million of “Estimated Healthcare payments made via Ontario solution today based on $2.4M Ontario revenue for 2019E.”15 The New Mountain and Eir Partners teams wanted to understand the source of these figures. On July 9, Eir Partners CEO Brett Carlson reached out to Baird to ask for “payment volume data on the [healthcare] side that is more than a swag [that is, a scientific, wild-*ss guess][.]”16 Carlson also emailed the New Mountain team 10 JX-57 at 207–08; JX-209 at 1–2; see also Trial Tr. at 1383:3–6 (Carlson). 11 JX-201. 12 Id. at 10. 13 Id. 14 Id. 15 Id. 16 JX-208 at 1. 4 that he estimated that Ontario “has $60BN+ of self pay ($34BN) and balances after billing (check me here but I think ~$30BN) and have the right clients.”17 He stated that there was “$1.25BN of total patient payments” running through Ontario’s system.18 All told, he felt “it is safe to assume that Ontario will be involved in $80 - $100BN+ of consumer payment transactions during our investment period.”19 In response to Carlson’s request for statistical backup on healthcare figures,20 the Baird team provided the following support: Ontario has quantified the payments flowing through the system as $33.9 billion in consumer payments, $87.4 billion in third party payer payments and another $48.4 billion in healthcare payments that Ontario documents and tracks but would not service (i.e. Ontario has insight into what triggered the payment and where it came from, which is direct to the provider from a consumer or third party).21 The Baird team explained its assumptions as follows: Consumer Payments 1) 7,000 provider agents performing self-pay (half the licensed seats) securing 3 payments per hour for 8 hours per day for 260 working days with average payment size of $175 = $7.64B 2) 100,116 [debt collection] Agents securing 10 payments per day for 260 days = 260,301,600 payments with an average payment size of $100 = $26.03 billion in payments 3) Related to court systems payments Ontario receives an average of 2,015 payments per day with an average size of 17 JX-209 at 3. 18 Id. 19 Id. 20 See JX-206. 21 JX-208 at 1. 5  $420 for a total per day of $855,244. Assuming the standard 260 days translates to $222.0 million annually. Note the portal operates 365 days per year but most Sunday and Holidays are light so we are using our standard of 260 days. Third Party Payer Payments 4) 7,000 provider agents securing 6 claims per hour for 8 hours a day for 260 working days with an average payment size of $1,000 = $87.4 billion in Payments[.]22 Baird based its assumptions on data it received from Ontario’s co-founder, Ronald Fauquher.23 Fauquher did not base his numbers on the volume of payments actually flowing through Ontario. Rather, he based his numbers on industry-wide benchmarks from a report created by the Association of Credit and Collection Professionals (“ACA”).24 Fauquher described the figures as “averages of averages.”25 This description, however, did not appear in Baird’s reply to Carlson.26 Rather, Baird’s analysis suggested that there were $34 billion of consumer payments “flowing through” Ontario’s systems that Ontario had yet to monetize.27 Carlson did not read the analysis as providing “averages of averages.” Rather, after he received Baird’s reply, Carlson updated New Mountain’s Managing Director 22 Id. (emphasis in original). 23 See JX-492 at 1; compare JX-206 with JX-492; see also Trial Tr. at 998:13–1000:1 (Durrett). 24 JX-499 at 1–2. 25 JX-492 at 3. 26 JX-208 at 1. 27 Id. 6 Matthew Holt, John Woody, the CEO of BKO Capital, LLC,28 and the New Mountain team over email. He stated that the “$33.9BN” of consumer “payments flowing through [Ontario’s] system” number provided by Baird represented “what is addressable today with Ontario’s current product.”29 Carlson believed it would “grow in excess of 10% per year based on their clients and consumer tailwinds.”30 Carlson further stated that, at the time, Ontario participated in a revenue share on $1.25 billion of total patient payments.31 This representation made New Mountain Vice President Michael Oshinsky skeptical of the “$33.9BN” figure.32 Oshinsky suggested contacting Baird to “get an understanding of what is in the $33.9B of consumer payments” figure, compared to the $1.25 billion of estimated currently monetized payments.33 He stated that “[c]learly if you believe any of this the deal is a no brainer,” but he noted that he was “skeptical” that another private equity firm would leave this type of opportunity on the table.34 Over the next several days, New Mountain and Eir Partners had calls with Baird to understand the assumptions behind the $34 billion number.35 28 BKO Capital is a non-party and limited partner in OSC Investment, L.P. PTO ¶ 74. 29 JX-209 at 1–2. 30 Id. 31 Id. at 3. 32 Id. at 1. 33 Id. 34 Id. 35 JX-214 at 1; Trial Tr. at 845:1–10 (Oshinsky). 7  New Mountain and Ontario also respectively engaged consulting firms McKinsey & Company and L.E.K. Consulting to estimate Ontario’s total addressable market (“TAM”).36 To that end, McKinsey produced a “Market Sizing” slide estimating that the market for processing credit card, debit card, and electronic transfer payments could be as large as $57 billion.37 L.E.K. estimated that, of $235 billion of annual payments made by U.S. healthcare providers, electronic payment is utilized for 65%, creating a TAM for healthcare payments of approximately $150 billion.38 For debt collection, L.E.K. also estimated a TAM of roughly $150 billion.39 These analyses were market estimates; neither McKinsey’s nor L.E.K.’s analysis investigated or analyzed the volume of payments flowing through Ontario’s system.40 On July 26, 2019, New Mountain’s deal team circulated its final post-diligence slide deck.41 In the slides explaining the investment thesis, the team described Ontario as “a stable platform occupying valuable real estate with high barriers to entry.”42 The slide stated that the platform “[p]rocesses $170B+ payments ($34B patient payments) and tracks $1T+ receivables along with 1B+ consumer 36 Trial Tr. at 845:11–17 (Oshinsky). 37 JX-230 at 67 (summing credit card, debit card, and “ACH / EFT” payment markets). 38 JX-145 at 139. 39 Id.; Dubbioso Dep. Tr. at 85:3–25. 40 See Dubbioso Dep. Tr. at 85:22–25 (describing L.E.K.’s TAM estimate as a “payments volume[] for an entire market of [debt collection] customers, inclusive of those that Ontario serves and those that it does not”). 41 JX-243. 42 Id. at 8. 8 interactions.”43 In a slide on the “5-Year Vision for Ontario,” the team stated there was “$1.25B of payments volume currently processed – mostly from [collection agencies] – at below market economics” and that by 2024 Ontario would have a “[s]ubstantial foothold in healthcare payments with large and growing portion of $34B in captive payments processed through Ontario’s workflow.”44 In August 2019, New Mountain and Eir Partners acquired Ontario at an enterprise valuation of $425 million.45 A New Mountain fund, New Mountain Partners V, L.P. (“Fund V LP”), paid $300 million for a 98% stake in Ontario’s holding entity OSC Investment, L.P.46 In its letter announcing the deal to investors, New Mountain stated that “Ontario touches $170 billion of healthcare payments annually, of which $34 billion are consumer paid.”47 B. Blue Star Invests In Ontario. BSIP OS LLC (“Blue Star”) is a “private equity firm that invests in software and payments businesses.”48 After acquiring Ontario, New Mountain recruited Blue Star and its founder and managing director Robert Wechsler to help advise on payments issues and analyze the payments opportunity.49 43 Id. 44 Id. at 10. 45 See JX-290 at 3. 46 Id.; PTO ¶ 83. 47 JX-290 at 6. 48 Trial Tr. at 920:8–10 (Durrett). 49 Id. at 815:18–21 (Oshinsky); id. at 923:16–20 (Durrett); PTO ¶ 69. 9  Before Blue Star invested, Wechsler asked “[h]ow much volume is there to monetize” on Ontario’s platform.50 In fact, he asked multiple questions designed to get a better understanding of the $34 billion figure.51 In response, Oshinsky provided Wechsler with information from BillingTree, Ontario’s then-largest payment- processing partner.52 Oshinsky described the “Billing Tree report” as “our best granular info” on individual customer payment accounts.53 Wechsler forwarded that email to John Durrett, his payments analyst.54 Based on their experience, they assumed only two-thirds of the $34 billion would be credit/debit available for conversion, of which Ontario could control only half.55 Wechsler presented New Mountain with this payments opportunity analysis, ultimately concluding that Ontario may be able to monetize $12.5 billion of the purported $34 billion payments volume.56 In October 2019, Blue Star invested $5 million in Ontario under the assumption that Ontario would acquire payments technology.57 Wechsler took a seat on Ontario’s board,58 and he was granted options that vested when New Mountain 50 JX-292 at 2. 51 Id.; Trial Tr. at 1126:6–24, 1135:6–20 (Wechsler). 52 JX-1843 at 3. 53 Id.; see also Trial Tr. at 1036:8–18 (Wechsler) (testifying that BillingTree data “was the best we had”). 54 JX-1843 at 2. 55 Trial Tr. at 1128:16–1129:6 (Wechsler); JX-1843 at 2. 56 JX-1842 at 1. 57 Trial Tr. at 1129:11–15, 1130:17–20 (Wechsler). 58 Id. at 1129:11–15, 1130:13–16 (Wechsler). 10 achieved a set return multiple upon a change of control.59 Blue Star also received $100,000 a month to consult on the investment.60 Wechsler, Blue Star contractor Matthew Steffe, and Durrett then began assessing PayFac acquisition opportunities with New Mountain’s Matthew Dubbioso and Oshinsky.61 C. Ontario Offers To Acquire SwervePay. SwervePay62 was an Illinois-based PayFac founded by spouses Jaeme and Katrina Adams in 2010.63 Jaeme, Katrina, and Christopher Hamilton (collectively, the “Individual Sellers”) all held executive roles with SwervePay.64 Jaeme served as SwervePay’s CEO.65 Katrina served as SwervePay’s Director of Operations.66 And Hamilton joined SwervePay in 2013 as Chief Technology Officer and wrote most of SwervePay’s software.67 59 JX-1917 at 27. 60 Trial Tr. at 1129:23–1130:2 (Wechsler). 61 PTO ¶ 84; see, e.g., JX-1852 at 2. 62 Before the SwervePay acquisition, SwervePay, LLC (“Legacy SwervePay”) owned the SwervePay business. PTO ¶¶ 55–56. Legacy SwervePay changed its name to SPOSC Investment Holdings, LLC on February 26, 2020. Id. ¶ 55. An entity called SwervePay Acquisition, LLC (“New SwervePay”) then acquired the business from Legacy SwervePay. Id. ¶ 81. New SwervePay changed its name from SwervePay Acquisition, LLC to SwervePay, LLC on April 8, 2020. Id. For simplicity, this decision refers to the business and its operations generally as “SwervePay.” 63 Id. ¶¶ 56–57, 59; Trial Tr. at 6:13–14 (J. Adams). This decision refers to Jaeme and Katrina Adams by their first names. The court intends no familiarity or disrespect. 64 PTO ¶¶ 57–59. 65 Id. ¶ 57. 66 Id. ¶ 59. 67 Id. ¶ 58; Trial Tr. at 12:1–5 (J. Adams). 11  Ontario and SwervePay had a business relationship before Buyers acquired SwervePay. SwervePay had partnered with Ontario beginning in May 2019 to integrate its payment application into Ontario’s software.68 And New Mountain began discussions with SwervePay about combining with Ontario before New Mountain acquired Ontario.69 Carlson first reached out to Jaeme in the summer of 2019. Although Carlson had “not look[ed] at Ontario-specific data at this time,”70 he told Jaeme that Ontario had an “unbelievable” amount of payments volume to monetize, and asked whether Jaeme was interested in discussing a partnership.71 Jaeme later had a call with Carlson and Ontario’s then-president Jason Harrington to discuss the idea.72 In July 2019, Harrington and Jaeme discussed Ontario’s platform and the payments volume available for monetization.73 During those conversations, Harrington represented there was “$170 billion of payments volume running through [Ontario’s] system.”74 By early October 2019, the New Mountain/Eir Partners/Blue Star team was focused on either acquiring one of their PayFac partners with “a scalable book of business” or acquiring a “small and under-marketed” PayFac that they could develop 68 Trial Tr. at 21:22–22:4 (J. Adams). 69 Id. at 25:6–22 (J. Adams); id. at 1381:14–17 (Carlson); JX-156. 70 Trial Tr. at 1383:7–12 (Carlson). 71 JX-179; see also Trial Tr. at 25:6–17 (J. Adams); id. at 1382:20–23 (Carlson). 72 Trial Tr. at 25:20–26:6 (J. Adams). 73 Id. at 22:9–23:7 (J. Adams). 74 Id. at 23:3–7 (J. Adams). 12 on a reasonable timeline.75 To explore whether SwervePay was the right target, Jaeme, Carlson, and Steffe met in Las Vegas on October 29, 2019.76 SwervePay and Blue Star had a business relationship before Blue Star invested in Ontario. In March 2019, a mutual acquaintance had connected Jaeme to Wechsler and Steffe through email.77 The acquaintance described Wechsler as someone who had been in Jaeme’s shoes, because he had also “built, ran and sold numerous payments & software companies to strategics and multiple private equity firms.”78 The acquaintance advised that Wechsler and Steffe were now “investing their personal capital” through Blue Star and that Jaeme should view them as people “you could lean on for advice, if you ever chose to do anything.”79 Over the ensuing months, Wechsler and Jaeme began discussing a potential investment by Blue Star in SwervePay. SwervePay even invited Wechsler to join its board of directors.80 And Jaeme told Wechsler that SwervePay closed a partnership with Ontario, which he stated had “170 billion running through them for healthcare, utilities and municipalities and have not monetized it.”81 Wechsler declined the invitation to join SwervePay’s board, reassured Jaeme that he would “always be just 75 JX-1844 at 4. 76 PTO ¶ 86. 77 JX-129 at 3. 78 Id. 79 Id. 80PTO ¶ 85; Trial Tr. at 30:17–19, 32:24–33:10 (J. Adams); id. at 1115:10–14 (Wechsler). 81 JX-213 at 3. 13 a phone call away - whatever you need,” and then finalized Blue Star’s $5 million investment in Ontario two months later.82 Jaeme learned about Wechsler’s move to Ontario just before the October 29, 2019 meeting. Carlson emailed Jaeme early on October 29 that Ontario had brought Wechsler on as an investor and board member and that he “mentioned you guys know each other well.”83 This was the first Jaeme heard of Wechsler’s investment relationship with Ontario.84 Jaeme was frustrated to learn that Wechsler joined Ontario’s board after Jaeme alerted him to their relationship with Ontario.85 Jaeme wanted to understand Wechsler’s role in the negotiation dynamics, and Wechsler was intentionally vague on that topic for much of the negotiations. Jaeme asked how Blue Star’s Ontario investment would change his relationship with Wechsler, who had previously presented himself as an ally and sounding board.86 Wechsler responded stating that he still wanted to do a deal with SwervePay.87 Jaeme asked Wechsler to confirm that the “deal” he was referring to was between SwervePay and New Mountain, not SwervePay and Ontario.88 Wechsler replied that “it could be either or both.”89 82 JX-2191. 83 JX-332 at 2. 84 Trial Tr. at 34:4–19 (J. Adams). 85 Id. at 34:20–24, 37:5–11 (J. Adams). 86 Id. at 35:10–21, 37:7–13 (J. Adams); JX-1845 at 1. 87 JX-1845 at 2. 88 Id. 89 Id. 14  After the meeting, Carlson told Jaeme that he “love[d] the dynamic” between the parties and that they could “work on an attractive business combination between all of us as partners.”90 Carlson reported to New Mountain that he wanted to keep the deal “tight for the time being” because “Jaeme is more comfortable with people he know[s] - gets guarded otherwise.”91 Carlson noted that another company was pursuing SwervePay and that he “[m]ight invite Jaeme to New Mountain at the right time.”92 After the meeting, Jaeme sent a joint-venture proposal to Wechsler.93 New Mountain and Eir Partners favored an acquisition and rejected the proposal.94 As they discussed putting together a deal on November 23, 2019, Wechsler texted Carlson that Blue Star was “close to [Jaeme] and he trusts us.”95 He advised them to be “aggressive but not binary.”96 On November 28, New Mountain and Eir Partners sent over a letter of intent on behalf of Ontario.97 Under its proposed terms, SwervePay would receive $17.5 million up front and up to $32.5 million across two earnouts.98 Ontario would retain 90 JX-1969 at 2. 91 Id. at 1. 92 Id. 93 Trial Tr. at 37:14–38:21 (J. Adams); JX-347. 94 See Trial Tr. at 39:13–40:23 (J. Adams). 95 JX-398 at 1. 96 Id. 97 JX-1849 at 2. 98 Id. 15 SwervePay’s team to lead the post-acquisition company and would work with Jaeme to “develop post-closing employment and compensation plans.”99 In the cover email, Steffe indicated that they wished to start diligence immediately.100 Jaeme responded by setting up a call with Carlson to discuss the terms.101 The following morning, Jaeme called Wechsler to discuss the earnout terms before speaking with Carlson.102 As Jaeme negotiated the earnout over the phone with Carlson, Wechsler “was on the other line,” in Wechsler’s words, “playing the ‘friend’ insider.”103 SwervePay rejected the initial offer.104 New Mountain sent a revised letter of intent on December 2, 2019. The revised letter upped the valuation from $50 million to $75 million and provided for $55 million in payments across two earnouts.105 When Jaeme shared the revised letter, he said that Wechsler advised him that if they did not make a deal, New Mountain would look to quickly acquire another payments business.106 SwervePay’s board rejected the deal and countered with an all-equity proposal so that they could benefit from the monetization upside.107 As 4490 99 Id. 100 Id. at 1 (proposing to “kick off diligence next week, if possible”). 101 JX-416 at 2. 102 Id. at 1. 103 Id. 104 JX-422 at 1. 105 Id. at 2. 106 Id. at 1. 107 Trial Tr. at 40:24–41:8 (J. Adams); id. at 457:19–458:2 (Malven). 16 Ventures108 partner Daniel Malven testified, “our understanding was that there was [$]40 to $50 billion of unmonetized payment volume being controlled by Ontario software. If we were able to monetize that, that would create a tremendous amount of equity value. So we wanted to ride that equity value up.”109 On December 5, New Mountain and Eir Partners responded with an updated letter of intent.110 This proposal valued SwervePay at $75 million, provided a $20 million upfront payment in a mix of cash and equity, and provided an additional $55 million across two earnouts.111 SwervePay accepted and the parties executed the letter of intent.112 D. Durrett Analyzes Ontario’s Payments Opportunity. After Ontario and SwervePay executed the letter of intent, Blue Star continued to explore Ontario’s payments opportunity and tasked Durrett with identifying new payments revenue drivers for the go-to-market strategy.113 In November 2019, Durrett reached out to Ontario’s CEO because he was “particularly interested in mapping out how much volume is being processed outside our systems and how we might get control of it.”114 108 4490 Ventures owned equity in Legacy SwervePay. PTO ¶ 70. 109 Trial Tr. at 457:21–458:2 (Malven). 110 JX-453 at 2. 111 Id. 112 Id. at 1. 113 See, e.g., JX-2182; Trial Tr. at 924:7–15, 951:13–20 (Durrett); id. at 1110:2–11 (Wechsler). 114 JX-374 at 1. 17  Durrett stated that he felt that there was “a big opportunity” but it was “going to take some work to piece it all together.”115 He started by exercising New Mountain’s and Blue Star’s contractual audit rights to obtain data from Ontario’s four most prominent processing partners.116 Throughout November and December 2019, Blue Star and New Mountain struggled to get the necessary data, and Carlson commented that these issues made him “want to buy SwervePay ASAP.”117 Durrett also looped in an Ontario executive and co-founder, Steve Blount, asking for back-up data to help validate the $34 billion volume figure.118 On December 12, Blount responded that there was not an automated way to get Ontario- specific customer data from its software and that Ontario reached the $34 billion figure using averages from the ACA report.119 Blount explained to Durrett the “averages of averages” problem—that the $34 billion figure was all “assumption based,” pulled together from various benchmarks and statistics based on averages, and that there was no longitudinal study over time.120 Durrett then performed a “bottoms-up” analysis of Ontario’s payments volume, using real customer data to try and accurately size the payments opportunity flowing through Ontario’s system.121 Durrett took a month’s worth of data from 115 Id. 116 JX-505 at 5–6. 117 Id. at 1. 118 JX-1851. 119 JX-499 at 1–2. 120 Id. 121 Trial Tr. at 933:3–21, 938:4–939:22 (Durrett). 18 Ontario’s four primary payments vendors and built up an estimate of the payments volume.122 Durrett arrived at a figure of just over $5.2 billion. 123 Of this volume, he estimated that there was about $3.3 billion worth of monetizable payments volume flowing through Ontario’s systems.124 On December 17, 2019, when Durrett circulated his analysis internally, he warned that it was limited because it was based on the data that Ontario’s vendors shared.125 He told the team that he would treat the estimate “as another example of how the data they’re sharing doesn’t seem to jibe with what we’d expect, and make them explain it.”126 On December 23, Oshinsky noted that based on the data, “[w]e are showing a much lower rev per seat than industry standards” and that they needed to figure out why.127 He speculated that one vendor was “‘hiding’ nearly $5m from us” and questioned the $5.2 billion figure.128 On January 16, Oshinsky updated the team that “we are very light on details of the actual payments buildup” and were working on additional valuation frameworks that relied on consolidated financials provided by 122 JX-638 at 1. 123 JX-666 at 6 (“Summary Analysis” tab, Row 26, Column F); Trial Tr. at 1001:16– 18 (Durrett). 124 Trial Tr. at 1001:6–13 (Durrett). 125 JX-544 at 1. 126 Id. 127 Id. 128 Id. 19 vendors.129 Nevertheless, by January 2020, New Mountain internally worked under the assumption that Ontario touched approximately $5 billion in payments.130 And New Mountain began to use the $5 billion estimate when comparing Ontario to other potential acquisition targets.131 E. SwervePay Diligences Ontario’s Payments Volume. Blue Star, New Mountain, and SwervePay had begun diligence by early December 2019.132 Between December 9 and December 23, the parties held at least three diligence calls.133 At the December 9 kick-off call, representatives from Blue Star and New Mountain stated to Jaeme and Hamilton that Ontario had between $40 and $50 billion of processing volume “captive to the platform.”134 On December 27, SwervePay sent over its first set of diligence requests.135 129 JX-586 at 1. 130 See, e.g., id. (referring to “Ontario’s ~$5.5B in current volume”); JX-603 at 1 (“With Ontario, . . . $5B overall sitting there.”); JX-734 at 1 (describing New Mountain’s “low- end estimate” of Ontario’s “annual volume potential” available for conversion as $5.5 billion), but see Trial Tr. at 970:21–971:13 (Durrett) (noting that he meant to write $5.2 billion rather than $5.5 billion)). Buyers used several figures around $5 billion when referring to Durrett’s analysis. This decision thus uses the figures $5 billion, $5.2 billion, and $5.5 billion interchangeably depending on the context. But each figure is based on Durrett’s analysis. 131 See JX-586 at 1; JX-603 at 1. 132 JX-470 at 1. 133 Id.; PTO ¶¶ 88, 90. 134 Trial Tr. at 314:13–315:3 (Hamilton); see also id. at 43:21–44:7 (J. Adams). 135 JX-556. 20  On January 25, 2020, New Mountain’s Oshinsky sent New Mountain’s projected financials and model for Ontario to Jaeme.136 The materials included a slide deck containing New Mountain’s initial investment thesis, which stated that Ontario processed over $170 billion of payments.137 SwervePay requested an in-person diligence meeting, which the parties set for January 31. Leading up to the meeting, Oshinsky advised Wechsler, Woody, Blount and Ontario’s then-CTO Michael Wolfe by email that Jaeme was pretty direct with his goal for the meeting. From their side, they want to understand how Ontario is going to be able to move payments volume technically, commercially and contractually on the platform. . . . His goal is ‘to be able to go back to his Board and confidently say they can hit the earnouts.’138 Durrett responded with a proposed “agenda/script to convince Swerve they can hit their earnout.”139 He suggested the team lead with the technical part “no matter what” and have the contractual and commercial parts “in our back pocket.” 140 On those subjects, he noted that “[w]e’ve identified at least $5.5 B in payments volume” and that “we only have to get 80% of volume moved to hit [the earnout] target - and we intend to get >90% of the volume [because] . . . we can move ALL of it.”141 Wechsler 136 JX-609 at 1. 137 Id. at 8. 138 JX-620 at 2. 139 Id. at 1. 140 Id. 141 Id. at 2. 21 felt that they did not need to be “selling” because they had SwervePay “where they need to be.”142 On January 31, Jaeme, Hamilton, Durrett, Oshinsky and others met at the Chicago O’Hare Hilton.143 At the meeting, New Mountain and Blue Star continued to represent that there was between $40 and $50 billion worth of payments volume running through Ontario’s platform.144 This was so although they had received Durrett’s bottoms-up analysis and had been discussing it internally. After the meeting, Durrett observed that SwervePay “believes in the opportunity and wants to get it done” and identified a few “problems we need to solve to get max payments penetration.”145 He described getting SwervePay customers to a place where they would adopt the Ontario payments solution as a top priority. 146 He estimated that about a third of existing customers would make the switch, another third would move happily if Ontario added some new features, and the last third might require some “cajoling.”147 He raised the possibility of forced conversion without discussing what that would involve, but he concluded that “a lot of the base can be moved voluntarily and happily with the right carrots.”148 142 JX-619 at 1. 143 PTO ¶ 92. 144 Trial Tr. at 317:24–318:7 (Hamilton). 145 JX-630 at 1. 146 Id. 147 Id. 148 Id. 22  On February 4, Jaeme sent Oshinsky follow up questions about Ontario’s processing volume.149 He asked for “a summary of all monthly payment processing volume separated by processing platform” and noted that the “[i]mportant data points we are interested in include successful transaction volume and transaction count (and/or average ticket size).”150 Oshinsky forwarded the email to Blount, asking who could answer the questions.151 Blount responded with Durrett’s analysis, noting that they “had pulled together a month’s worth of data from our 4 primary payments vendors” and Durrett “then built out the estimated Ontario Payments opportunity sizing” attached.152 He advised that “[w]e might want to speak with [] Durrett about how best to present this to Jaeme and Chris [Hamilton] at SwervePay.”153 On February 6, Oshinsky looped in Durrett, asking whether sending anonymized data reflecting October’s processing volume was “an appropriate response.”154 Although Blount considered it appropriate, Durrett asked if there was “[a]ny reason not to just provide the Summary Analysis tab [from his analysis], so [Jaeme] doesn’t have to do all the XLS work to get to that same point?” 155 He noted 149 JX-655 at 2–3. 150 Id. at 3. 151 JX-642 at 3–4. 152 Id. at 3. 153 Id. 154 Id. at 2. 155 Id. at 1. 23 that “at least that way he sees the volume is real and based on defensible assumptions.”156 Oshinsky initially agreed with Durrett’s approach.157 But he later changed his mind. That evening, Oshinsky pitched a new strategy to Blount and Durrett.158 He said that he “want[ed] to lead [SwervePay] to make their own assumptions” because “[t]hey might wind up with an expected payments volume number way bigger than ours.”159 He reasoned that Buyers “can communicate that we think there’s $5B of volume if they push back on the earnouts but I’d like to keep that in our back pocket for now.”160 He also “[w]ant[ed] to avoid the argument of whether 66% conversion of our payments volumes onto their platform is a reasonable earnout or not.”161 Durrett agreed, noting that “[w]e can always come back with our #s if they don’t conclude the right thing.”162 Oshinsky assured the team that “[i]f they’re low we’ll steer them up.”163 156 Id. 157 Id. 158 JX-652 at 1. 159 Id. 160 Id. (emphasis added). 161 Id. 162 Id. (emphasis added). 163 Id. (emphasis added). At trial, Oshinsky testified that he decided not to share Durrett’s analysis with Sellers because he did not want to provide inaccurate information. Trial Tr. at 832:24–834:3 (Oshinsky). The contemporaneous evidence does not support this testimony. 24  The next day, Oshinsky responded to Jaeme with a revised version of the data from Durrett’s analysis, noting that the data represented “only customers for which Ontario receives reporting.”164 Oshinsky stated that “[t]he total payment volume running through our workflow on a monthly basis is multiples of these numbers.”165 After he received Oshinsky’s email, Jaeme messaged Hamilton that Oshinsky sent over what he expected, but noted that they should have more volume data, which “is what we want to know.”166 He also wanted further detail on what Ontario made on the volume it broke out.167 To Jaeme and Hamilton, if Ontario’s platform was processing $40 to $50 billion, Ontario should have had data on those payme