KnowBe4 faces class action lawsuit over Vista Equity buyout disclosures

A securities class action lawsuit has been filed against Florida-based cybersecurity training firm KnowBe4, Inc. over its $4.6 billion acquisition by Vista Equity Partners, alleging shareholders were misled about the value of the transaction and the fairness of the sales process. The complaint, brought by Entwistle & Cappucci LLP in the U.S. District Court for the Southern District of Florida, targets multiple defendants including KnowBe4’s former board members, Vista Equity, early investor KKR & Co. Inc., and Elephant Partners.

The case, formally titled Water Island Event-Driven Fund v. KnowBe4, Inc., No. 25-cv-22574, centers on KnowBe4’s 2023 take-private deal and accuses the defendants of violating key provisions of federal securities law. The proposed class includes shareholders who either sold KnowBe4 stock between October 12, 2022 and February 1, 2023, or held shares as of December 7, 2022, the record date for the shareholder vote approving the merger.

Why KnowBe4’s Vista merger is under legal fire

The legal action stems from allegations that investors were deprived of material information regarding KnowBe4’s valuation, the role of insider shareholders in the buyout, and the integrity of the deal process itself. The lawsuit claims that the proxy statement issued on December 22, 2022, and its amended version on January 18, 2023, failed to disclose conflicts of interest and insider preferences that favored Vista Equity over other potential bidders.

Among the most serious claims is the allegation that KKR & Co. Inc. increased its equity rollover into the post-merger entity after learning of the final acquisition price, signaling its belief that KnowBe4 was worth more than the buyout offer suggested. The proxy documents allegedly failed to disclose this change, leaving shareholders unaware that a major insider was opting to retain a larger ownership stake in the private version of the company.

Additionally, the complaint argues that Vista was provided exclusive access to confidential financial information and was given preferential treatment throughout the bidding process. This lack of competitive openness, Entwistle & Cappucci contends, deprived the board of its obligation to maximize shareholder value and instead paved the way for a deal structure that benefited insiders at the expense of public investors.

Background on KnowBe4’s rise and acquisition timeline

Founded in 2010 and based in Clearwater, Florida, KnowBe4 became one of the world’s largest providers of security awareness training and simulated phishing platforms. Its platform gained traction with enterprise customers across finance, government, healthcare, and education sectors amid surging demand for tools that could reduce human error in cybersecurity.

The company went public in April 2021, trading under the NASDAQ ticker KNBE. In the quarters that followed, KnowBe4 reported robust recurring revenues and high net retention rates, underpinned by an expanding global customer base. By mid-2022, the firm had positioned itself as a top player in a rapidly growing category of human risk management.

On October 12, 2022, KnowBe4 announced its agreement to be acquired by Vista Equity Partners in an all-cash transaction valued at $24.90 per share, reflecting a 44% premium to its undisturbed share price. Shareholders approved the deal on January 31, 2023, and the transaction was completed on February 1, 2023, resulting in KnowBe4’s delisting and transition into private ownership.

Shareholder eligibility and August 5 lead plaintiff deadline

The lawsuit names Water Island Event-Driven Fund, an institutional investor with expertise in merger arbitrage, as lead plaintiff. It claims that shareholders who sold stock during the deal window or who held shares as of the December 2022 record date were misled by KnowBe4’s communications, which allegedly omitted critical facts about the bidding process and internal deal dynamics.

Investors who fall into the proposed class can apply to be lead plaintiff by filing a motion with the court by August 5, 2025. Alternatively, they may remain passive members of the class without filing or participating directly in the litigation process.

Under U.S. class action procedures, the lead plaintiff represents the full class and works with counsel to determine legal strategy, potential settlements, and court filings. Appointment as lead plaintiff often reflects both economic interest and ability to represent the broader shareholder group.

What the complaint alleges about valuation manipulation and insider advantage

According to the complaint, the core issue lies in the gap between KnowBe4’s intrinsic value and the transaction price accepted by the board. Plaintiffs argue that the company’s financial advisors and directors failed to accurately reflect KnowBe4’s future revenue growth, customer retention, and product expansion opportunities in their fairness opinions and public filings.

One of the more contentious claims is that the board offered Vista Equity preferential treatment during the sale process, including time-limited exclusivity, access to confidential projections, and other deal-structuring benefits that were not made available to alternative bidders. This, according to the filing, effectively shut out any chance of a higher competing offer and undercut the fiduciary obligation to conduct a good-faith sales process.

The complaint also raises concerns about insider behavior. KKR, which had a significant stake in KnowBe4 from its earlier investment, allegedly chose to roll over a larger stake into the new private entity after the deal price had been finalized—a move that the plaintiffs argue signaled private knowledge of underpricing. Shareholders, however, were never made aware of this shift, which could have influenced their own vote or decision to sell.

Expert and institutional views on the lawsuit’s implications

Legal analysts and institutional investors are closely watching the case, as it highlights recurring governance concerns in private equity-led take-private deals. As more technology companies exit public markets via sponsor-backed mergers, investors have expressed rising unease over whether boards are conducting truly competitive processes and disclosing all material facts.

The case against KnowBe4, Vista, and KKR underscores the role of equity rollovers—where existing insiders maintain ownership stakes in the private entity—as potential sources of conflict. If such actions are not disclosed to shareholders, courts may view them as breaches of fiduciary duty or violations of SEC rules designed to ensure transparent shareholder decision-making.

Analysts suggest that a successful outcome for plaintiffs could lead to stronger regulatory guidance around proxy transparency, especially in cases where private equity sponsors are involved and where insider rollover arrangements influence pricing dynamics.

Broader consequences for M&A deal practices and boardroom governance

The KnowBe4 class action fits within a broader trend of litigation challenging the fairness and transparency of take-private transactions in the U.S. capital markets. Plaintiffs’ law firms and institutional investors have increasingly focused on how proxy statements frame the decision-making process, what valuation inputs are shared, and whether shareholder rights are properly considered.

If the lawsuit proceeds past early motions and into substantive discovery or trial, it may shed light on how KnowBe4’s board evaluated competing bids, how its financial advisors structured fairness opinions, and whether investor input was meaningfully considered.

Should the court side with Entwistle & Cappucci, the judgment or settlement could establish stronger precedents requiring boards to disclose all insider stake adjustments, competitive bidding conditions, and sponsor incentives. This, in turn, may raise the standard for conflict mitigation and governance transparency in future M&A scenarios—particularly in tech and software sectors where sponsor interest is high.