WELLESLEY, Mass. -- One buyout firm is suing another, alleging fraudulent conduct and misrepresentation, in a rare move for the clubby private-equity industry.
Boston-based media investor Abry Partners LLC filed suit against Providence, R.I.-based Providence Equity Partners Inc. regarding F&W Publications, a publisher of specialist magazines that Abry bought from Providence in August for $500 million.
Abry alleged that as a result of misleading financial information provided by Providence and Cincinnati-based F&W, it overpaid for the company. Abry wants to rescind the transaction or collect unspecified damages from Providence Equity and affiliated funds.
Providence Equity has not yet filed a response to the lawsuit.
A Providence Equity spokesman Andrew Cole, said that the firm "categorically denies any wrongdoing related to the transaction." He said that Providence Equity cannot comment on any of Abry's allegations while the lawsuit is pending but that the firm will vigorously defend itself.
Abry's attorney, Mark Hansen of law firm Kellogg Huber Hansen Todd Evans & Figel, declined comment.
In the lawsuit filed last week in the Delaware Chancery Court, Abry alleged that under Providence's ownership, F&W artificially inflated its revenue for the six-month period ended June 30, 2005 _ the time period during which Abry was looking at buying the company.
Abry's lawsuit is unusual in the secretive private-equity industry, which has tended to avoid airing its disputes in the courtroom, due to the danger that potentially sensitive data will have to be disclosed in court proceedings. But such lawsuits are on the rise as the industry becomes increasingly concerned with proper accounting procedures and due diligence.
"It's very unusual to see one private-equity firm suing another," said Marco Masotti, the co-head of the private-equity group at law firm Paul Weiss Rifkind Wharton & Garrison LLP. But, he added, "given how private equity firms are buying and selling companies from each other these days _ rather than from strategic buyers _ that is a circumstance that lends itself to such problems."
Last year, buyout firm Willis Stein & Partners sued mid-market LBO shop Brynwood Partners for allegedly misrepresenting the financial performance of Lincoln Snacks Holding Co., which it sold to Willis Stein. Earlier this year, Brynwood filed a motion to dismiss the case; no further updates were available.