Corporate Governance Risks in All-Cash Buyouts: A Closer Look at Fiduciary Duty and Shareholder Value Protection

In the evolving landscape of corporate acquisitions, all-cash buyouts have become a favored strategy for private equity firms seeking to consolidate control over high-growth technology companies. The recent $70-per-share acquisition of Dayforce, Inc. by Thoma Bravo—a deal valued at $12.3 billion—offers a compelling case study to dissect the governance risks inherent in such transactions. While the offer represents a 32% premium over Dayforce's pre-announcement stock price, the lack of transparency in board decision-making and the absence of competitive bidding raise critical questions about fiduciary duty and shareholder value protection.

The Governance Dilemma: Fiduciary Duty in All-Cash Buyouts

When a board of directors approves a buyout, it is legally obligated to act in the best interests of shareholders. However, the Dayforce deal highlights a recurring challenge: the tension between board independence and the influence of private equity sponsors. Thoma Bravo, a software-focused private equity firm with a $184 billion portfolio, has a track record of acquiring companies with recurring revenue models—Dayforce's core strength. The board's unanimous endorsement of the $70-per-share offer, coupled with a $351 million termination fee if the deal collapses, signals a strong alignment with Thoma Bravo's interests. Yet, the absence of a financing condition and the board's refusal to solicit alternative bids (except under limited circumstances) suggest a lack of rigor in maximizing shareholder value.

The board's decision to forgo a robust bidding process is particularly contentious. While Thoma Bravo's $70-per-share offer is a premium, Dayforce's Q2 2025 results—9.8% revenue growth and a 13.6% increase in recurring revenue—indicate untapped potential. By not encouraging competing offers, the board may have prioritized expediency over thoroughness, potentially leaving money on the table. This raises concerns about whether the board fulfilled its duty to act as a “honest broker” in the transaction.

Shareholder Value Protection: A Mixed Bag

For shareholders, the Dayforce deal presents a paradox. On one hand, the immediate 32% premium offers a clear financial benefit. On the other, the transition to private ownership removes the company from public market scrutiny, reducing transparency and accountability. The board's reliance on forward-looking statements—such as claims about accelerating AI-driven HCM innovation—lacks concrete metrics, leaving investors to speculate on long-term value creation.

Institutional investors have responded with a split strategy. Price T Rowe Associates Inc increased its holdings by 50.7% in Q2 2025, while Capital Research Global Investors and BlackRock reduced their stakes by over $676 million combined. This divergence underscores the uncertainty surrounding the deal's long-term implications. Meanwhile, insider selling by executives like Samer Alkharrat and Stephen Holdridge—totaling millions in proceeds—has fueled skepticism about the board's confidence in the company's future under private ownership.

Lessons for Investors: Navigating Governance Risks

For investors evaluating all-cash buyouts, the Dayforce case underscores the importance of scrutinizing governance structures. Key considerations include:
1. Board Independence: Assess whether the board has sufficient independent directors to challenge management and private equity sponsors. In Dayforce's case, Gerald Throop, the lead independent director, emphasized the transaction's benefits but provided no detailed rationale for the $70-per-share offer.
2. Termination Fees: High termination fees (e.g., Dayforce's $351 million) can deter alternative bids, reducing competition and potentially undervaluing the company.
3. Shareholder Approval Requirements: While Dayforce's deal requires a majority vote, the absence of a financing condition and the board's restrictive covenants limit shareholder influence.

Investors should also monitor regulatory developments, as the deal's $12.3 billion valuation will face scrutiny under U.S. and Canadian antitrust laws. The involvement of ADIA, a sovereign wealth fund, adds another layer of complexity, as its long-term strategic goals may differ from those of public shareholders.

Conclusion: Balancing Opportunity and Risk

All-cash buyouts like Dayforce's offer immediate liquidity but often come at the cost of long-term transparency. While the $70-per-share premium is attractive, investors must weigh the governance risks—particularly the board's limited engagement with alternative bids and the lack of public accountability post-privatization. For companies in high-growth sectors like AI-driven HCM, the decision to go private should be accompanied by clear, measurable commitments to innovation and shareholder value.

In the end, the Dayforce deal serves as a cautionary tale: even the most lucrative offers can mask governance vulnerabilities. Investors must remain vigilant, ensuring that fiduciary duties are not overshadowed by the allure of short-term gains.