PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP Attorneys at Law
1900 K Street NW, Suite 800 Washington, DC 20006 Telephone: (202) 555-7400 Facsimile: (202) 555-7401
MEMORANDUM
TO: Graham A. Whitfield, Founding Partner & CEO, Solara Digital Infrastructure GP LLC Sandra K. Levinson, Co-Managing Partner & CIO, Solara Digital Infrastructure GP LLC
FROM: Howard Bellamy, Partner, Antitrust & Competition Group Monica Reyes, Senior Associate, Antitrust & Competition Group
DATE: June 2, 2023
RE: Second Request Compliance Strategy — FTC File No. 231-0487; Proposed Acquisition of Pinnacle Cloud Systems, Inc. by Solara Digital Infrastructure Fund IV LP
CC: Elliot Nguyen, Associate, Calderwood & Harkness LLP Tamara J. Westbrook, Of Counsel, E-discovery, Calderwood & Harkness LLP
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I. Executive Summary
The purpose of this memorandum is to outline a comprehensive compliance plan for the Second Request issued by the Federal Trade Commission ("FTC") on May 29, 2023, in connection with the proposed acquisition of one hundred percent (100%) of the outstanding capital stock of Pinnacle Cloud Systems, Inc. ("Pinnacle" or the "Target") by Solara Digital Infrastructure Fund IV LP ("Fund IV"), or its designated acquisition subsidiary PCS Acquisition Corp. ("Merger Sub"), at an enterprise value of approximately $1.63 billion (the "Transaction"). The Second Request was issued one day after the initial Hart-Scott-Rodino ("HSR") waiting period expiration of May 28, 2023, pursuant to a one-day extension agreement negotiated between Calderwood & Harkness and FTC staff in the Bureau of Competition's Mergers IV Division. The matter has been assigned FTC File No. 231-0487.
The Transaction is governed by that certain Stock Purchase Agreement (the "SPA" or "Merger Agreement"), dated April 14, 2023, by and among Solara Digital Infrastructure Fund IV LP, PCS Acquisition Corp., Pinnacle Cloud Systems, Inc., Thorngate Capital Partners LP (in its capacity as Sellers' Representative), and the Sellers named therein. The HSR notification was filed on April 28, 2023, commencing an initial thirty (30) day waiting period that expired on May 28, 2023. As noted, the parties had agreed to a one-day extension to permit the FTC additional time to finalize its determination, resulting in the Second Request being issued on May 29, 2023.
The Second Request encompasses forty-seven (47) specifications covering a broad range of documents, structured data, and interrogatory responses. These specifications are organized across typical categories, including relevant product and geographic market definitions, competitive dynamics, pricing and customer switching cost analyses, barriers to entry, integration and combination planning documents, financial projections, and strategic plans. The Second Request requires coordinated compliance from both the Solara side (to be managed by Calderwood & Harkness LLP) and the Pinnacle side (to be managed by Hargrove, Pelletier & Stein LLP, antitrust counsel to the Target and the Sellers).
Our primary compliance objective is to achieve Substantial Compliance Certification by mid-to-late September 2023, with a target date of September 22, 2023 — approximately one hundred sixteen (116) days from the date of issuance. This timeline is aggressive but achievable with the resources and approach outlined below, and would position the parties to engage in post-certification advocacy with FTC staff through the fourth quarter of 2023, with a goal of obtaining FTC clearance by January 2024.
Based on our preliminary review of the Second Request specifications and our initial discussions with FTC Mergers IV staff, we have identified the following key risk areas:
• Horizontal Overlap: The FTC's primary focus appears to be the horizontal overlap between Pinnacle and Meridian Workflow Solutions, Inc. ("Meridian"), a current Solara portfolio company, in the area of cloud-based portfolio analytics and performance attribution software for institutional asset managers. Both Pinnacle and Meridian offer analytics functionality to overlapping customer sets, and the FTC is likely to probe whether the Transaction would reduce competition in a relevant market defined around these products.
• Vertical Foreclosure: The FTC has also signaled interest in potential vertical foreclosure concerns arising from the post-merger integration of Meridian's order management system ("OMS") and execution management system ("EMS") platform with Pinnacle's analytics data and performance attribution tools. The concern is that the combined entity could deny interoperability or raise rivals' costs, foreclosing competing analytics or OMS providers.
We estimate the total Solara-side compliance cost at approximately $7.56 million, comprised of $5.74 million in Calderwood & Harkness legal fees and $1.82 million in e-discovery vendor costs through Keymark Document Solutions LLC. This estimate covers the period from engagement through FTC clearance and assumes no FTC litigation challenge; costs would increase materially in the event of a contested enforcement proceeding.
Finally, we note that the Merger Agreement provides an Outside Date of April 14, 2024 (twelve months from signing), with an automatic three-month extension to July 14, 2024, if antitrust clearance is the sole unsatisfied closing condition. This provides ample runway for compliance, post-certification advocacy, and, if necessary, additional negotiations with FTC staff.
II. Background on the Transaction
A. Transaction Structure
The acquirer in the Transaction is Solara Digital Infrastructure Fund IV LP ("Fund IV"), a Delaware limited partnership with $4.2 billion in committed capital. Fund IV is part of the broader Solara Digital Infrastructure LP ("Solara") platform, a Delaware-based private equity sponsor with approximately $14.7 billion in total assets under management across four investment funds (Funds I through IV). Solara specializes in technology infrastructure, enterprise software, and digital services investments, with a particular focus on business-critical software platforms serving the institutional financial services industry.
The general partner of Fund IV is Solara Digital Infrastructure GP LLC (the "GP"), a Delaware limited liability company managed by Graham A. Whitfield (Founding Partner & CEO) and Sandra K. Levinson (Co-Managing Partner & CIO). The GP serves as the ultimate decision-making authority for Fund IV's investment activities, subject to the Limited Partnership Agreement and Investment Committee governance procedures. Solara's principal offices are located at 200 Tatnall Street, Suite 1400, Wilmington, DE 19801. Solara's registered agent in Delaware is Capitol Registered Agents, Inc., 1209 Orange Street, Wilmington, DE 19801.
The Target is Pinnacle Cloud Systems, Inc., a Delaware corporation headquartered at 8700 Research Boulevard, Suite 500, Austin, TX 78758. Pinnacle was founded in 2011 and has grown to become a leading provider of cloud-based portfolio analytics, risk modeling, ESG scoring, and performance attribution software for institutional investors. Pinnacle is led by Chief Executive Officer Nathaniel R. Okonkwo, Chief Financial Officer Diane M. Hartwell, and General Counsel Marcus E. Culberson.
The Transaction is structured as a stock purchase, to be effected through PCS Acquisition Corp. (the "Merger Sub"), a newly formed Delaware corporation and wholly owned indirect subsidiary of Fund IV (EIN 92-5038471). Pursuant to the SPA, Fund IV (through the Merger Sub) will acquire one hundred percent (100%) of the outstanding capital stock of Pinnacle from the existing stockholders, including Thorngate Capital Partners LP (the majority holder), management shareholders, and Crestline Ventures LLC.
The enterprise value of the Transaction is $1.63 billion. The consideration consists of cash consideration of approximately $1.19 billion and rollover equity of approximately $440 million (representing approximately 26.99% of enterprise value, calculated as $440 million divided by $1,630 million). The rollover equity will be contributed by management stockholders and certain existing investors who will retain an equity stake in the post-closing entity. The Transaction implies a revenue multiple of approximately 4.21x LTM Revenue (based on $387 million LTM revenue as of Q1 2023) and an EBITDA multiple of approximately 21.85x LTM EBITDA (based on $74.6 million LTM EBITDA as of Q1 2023).
The Transaction is to be financed through a combination of Fund IV equity, rollover equity, and a $825 million senior secured term loan facility provided by Briarcliff National Bank, N.A., with relationship management led by Karen P. Aldridge. Briarcliff National Bank, N.A. is headquartered at 270 Greenwich Street, New York, NY 10007. The commitment letter for the term loan facility was executed contemporaneously with the SPA.
Solara's financial advisor on the Transaction is Redstone Advisory Group LLC (Managing Director: Elaine C. Davenport), located at 399 Park Avenue, 22nd Floor, New York, NY 10022. Redstone has provided financial advisory services to Solara on each of its last three platform acquisitions and has deep familiarity with the institutional investment technology sector.
Pinnacle's financial statements are audited by Fielding & Cascade Insurance Brokers (Engagement Partner: Thomas R. Sennett, CPA), located at 700 Lavaca Street, Suite 1000, Austin, TX 78701. The most recent audited financials (fiscal year ended December 31, 2022) and the unaudited Q1 2023 financials were provided to Solara during diligence and will be relevant to several structured data specifications in the Second Request.
The HSR filing fee was $450,000, based on the $1.63 billion transaction value falling within the applicable fee tier under the HSR Act and the 2023 revised fee schedule.
B. Target Company Profile
Pinnacle Cloud Systems, Inc. is a cloud-based software company that provides portfolio analytics, risk modeling, ESG scoring, and performance attribution solutions to institutional asset managers, pension funds, insurance companies, sovereign wealth funds, and other sophisticated institutional investors. Pinnacle's products are delivered on a subscription software-as-a-service ("SaaS") basis, with substantially all of the company's revenue derived from recurring subscription fees and related professional services.
For the last twelve months ended March 31, 2023 ("LTM"), Pinnacle generated total revenue of $387 million and EBITDA of $74.6 million, representing an EBITDA margin of approximately 19.3%. The company employs approximately 1,420 people across its Austin headquarters, satellite offices in New York, London, and Singapore, and a technology development center in Hyderabad, India.
Pinnacle's core product offerings include:
• Performance Attribution and Portfolio Analytics: This is Pinnacle's flagship product line and the primary focus of the FTC's Second Request inquiry. Revenue attributable to performance attribution and portfolio analytics for LTM Q1 2023 was approximately $289 million, representing 74.68% of total revenue. This product line provides institutional investors with tools for return decomposition, factor-based attribution, benchmark comparison, and risk-adjusted performance measurement across equity, fixed income, and multi-asset portfolios.
• Risk Modeling: Pinnacle offers multi-factor risk models, stress testing capabilities, and scenario analysis tools that complement its core analytics platform. Risk modeling functionality is typically sold as an add-on to the core analytics subscription.
• ESG Scoring: Pinnacle has invested significantly in building an ESG scoring and integration module that allows institutional investors to incorporate environmental, social, and governance factors into their portfolio construction and performance measurement processes.
• Data Integration and APIs: Pinnacle maintains open-architecture application programming interfaces ("APIs") that enable interoperability with a wide range of third-party order management systems, execution management systems, custodial platforms, and market data providers.
Pinnacle's customer base is concentrated among large institutional asset managers, with the company's top twenty-five clients accounting for approximately 48% of annual recurring revenue. Customer retention rates have consistently exceeded 95% on a dollar-weighted basis over the past three fiscal years, reflecting high switching costs and deep integration of Pinnacle's analytics tools into customers' investment workflows.
C. Strategic Rationale and Overlap Concern
The strategic rationale for the Transaction is rooted in Solara's thesis of creating an integrated, front-to-back-office technology stack for institutional investors by combining Pinnacle's portfolio analytics platform with the trade execution and order management capabilities of Meridian Workflow Solutions, Inc. ("Meridian"), an existing Solara portfolio company.
Meridian Workflow Solutions, Inc. is a Delaware corporation headquartered at 350 North Clark Street, Suite 2200, Chicago, IL 60654, and is led by CEO Priya N. Raghavan. Meridian provides SaaS-based trade order management, execution management, and compliance workflow software to buy-side institutional investors. Meridian was acquired by Solara through Fund III in November 2020 at an enterprise value of $680 million and has since grown its LTM Revenue to $212 million (as of Q1 2023).
Meridian's product suite is primarily focused on trade lifecycle management, including order generation, routing, execution, allocation, and post-trade settlement, along with integrated regulatory compliance workflow tools. However, Meridian also offers a portfolio analytics module that provides basic performance measurement and attribution functionality to its OMS/EMS customers. Revenue from this analytics module for LTM Q1 2023 was $37.4 million, representing 17.64% of Meridian's total revenue. It is this analytics module that gives rise to the horizontal overlap concern identified by the FTC.
The combined entity, upon closing, would offer institutional investors a unified platform encompassing order management, execution management, compliance workflows, portfolio analytics, performance attribution, risk modeling, and ESG scoring. Solara's investment thesis posits that the current market landscape, in which institutional investors must stitch together multiple point solutions from different vendors, creates operational inefficiency, data reconciliation challenges, and increased total cost of ownership. By combining Pinnacle and Meridian under common ownership, Solara seeks to deliver a seamless, integrated solution that reduces these frictions and provides superior value to customers.
The FTC-identified concern areas arising from this transaction are twofold:
1. Horizontal Overlap in Portfolio Analytics: Both Pinnacle and Meridian offer portfolio analytics functionality to institutional asset managers. The FTC is concerned that the acquisition would reduce the number of independent competitors in the cloud-based portfolio analytics and performance attribution market, potentially leading to higher prices, reduced innovation, or diminished service quality for institutional investors.
2. Vertical Foreclosure Concerns: The FTC has indicated interest in examining whether the post-merger entity could leverage the integration of Meridian's OMS/EMS platform with Pinnacle's analytics data to foreclose competing analytics providers (by denying them access to order flow data necessary for accurate analytics) or competing OMS providers (by making Pinnacle's analytics functionality available exclusively or preferentially to Meridian's OMS platform, thereby raising rivals' costs or degrading interoperability).
Our preliminary assessment of the available counterarguments is encouraging. First, we believe the appropriate relevant product market is substantially broader than cloud-based portfolio analytics alone and should encompass on-premise legacy analytics systems (which continue to serve a significant share of institutional investors), multi-asset class risk platforms that include integrated analytics functionality, and general-purpose business intelligence tools that are increasingly adopted by institutional investors for performance measurement. Second, even under the narrowest plausible market definition limited to cloud-based portfolio analytics and performance attribution for institutional investors in North America, the combined entity's market share remains below 18%. Specifically, Pinnacle's estimated share is approximately 12.4% and Meridian's analytics module share is approximately 5.2%, for a combined share of approximately 17.74%, based on a North American analytics segment total addressable market ("TAM") estimated at $1.84 billion. In absolute terms, combined analytics revenue is approximately $326.4 million ($289 million from Pinnacle plus $37.4 million from Meridian).
Moreover, the market includes numerous vigorous competitors, including Marlowe Asset Management Analytics Corp. (with an estimated share of approximately 16%), Arclight Data Systems (approximately 14%), and at least twelve additional competitors each holding more than 1% market share. The competitive landscape is dynamic and characterized by frequent new product introductions, aggressive pricing competition, and low barriers to customer switching for analytics-only solutions.
With respect to vertical foreclosure, both Pinnacle and Meridian maintain open-architecture APIs that currently interoperate with at least nine competing OMS and analytics platforms. There is no technical basis for foreclosure, and the economic incentive analysis is expected to demonstrate that foreclosure would be unprofitable given the risk of customer defection and the availability of competing integration alternatives. We will develop these arguments in detail in the Economic Submission planned for November 2023.
The global TAM for institutional investment technology is estimated at $11.8 billion, with the North American segment accounting for approximately $6.2 billion. In this broader context, the Transaction involves the combination of two mid-sized participants in a fragmented and growing market.
D. Sellers and Other Parties
The selling stockholders in the Transaction include the following principal parties:
• Thorngate Capital Partners LP holds approximately 58% of Pinnacle's outstanding equity. Thorngate is a growth equity firm headquartered at 555 California Street, Suite 3100, San Francisco, CA 94104. The deal lead at Thorngate is Managing Director Julian V. Strathmore. Thorngate is represented on M&A transaction matters by Ashford Crane LLP (Lead Partner: Robert T. Ishikawa), located at 555 Mission Street, Suite 2800, San Francisco, CA 94105. While Ashford Crane's primary role relates to the SPA and transaction documentation, Thorngate may possess documents responsive to the Second Request in its capacity as majority stockholder and board-represented investor.
• Management Stockholders collectively hold approximately 22% of Pinnacle's outstanding equity. This group includes CEO Nathaniel R. Okonkwo, CFO Diane M. Hartwell, and other senior executives. A portion of management's equity is subject to rollover in connection with the Transaction.
• Crestline Ventures LLC holds approximately 20% of Pinnacle's outstanding equity. Crestline is a venture capital firm with Managing Partner Angela W. Frederickson. Crestline is expected to fully cash out at closing and is not participating in the rollover equity structure.
Antitrust counsel to Pinnacle and the Sellers for purposes of Second Request compliance is Hargrove, Pelletier & Stein LLP ("HPS"), located at 2001 Ross Avenue, Suite 3600, Dallas, TX 75201. The lead partner is Catherine A. Pelletier, and the working associate is David L. Morrissette. HPS will manage all aspects of Pinnacle's Second Request compliance, including custodian selection, document collection and review, structured data submissions, and the filing of Pinnacle's Substantial Compliance Certification. Calderwood & Harkness will coordinate closely with HPS throughout the compliance process as detailed in Section IX below.
III. Overview of the Second Request
A. Scope and Specifications
The Second Request issued by the FTC on May 29, 2023, contains forty-seven (47) specifications issued by the Bureau of Competition, Mergers IV Division. The specifications follow the FTC's standard Second Request format but have been tailored to address the specific competitive concerns arising from the Pinnacle-Meridian overlap and the vertical integration theory. The specifications are organized across the following typical categories:
(a) Relevant Product and Geographic Markets (Specifications 1–8). These specifications request documents and data sufficient to identify and define the relevant product markets for portfolio analytics, performance attribution, risk modeling, order management, execution management, and compliance workflow software. Geographic market inquiries focus on the United States and North America, with additional inquiries regarding global competitive dynamics.
(b) Competition Between Pinnacle, Meridian, and Third-Party Competitors (Specifications 9–18). These specifications seek documents reflecting competitive analyses, market positioning, win/loss records, customer switching behavior, head-to-head competitive encounters, and assessments of the competitive significance of specific rivals. The specifications explicitly name Pinnacle, Meridian, and several third-party competitors including Marlowe Asset Management Analytics Corp., Arclight Data Systems, and others.
(c) Pricing, Customer Switching Costs, and Barriers to Entry (Specifications 19–26). These specifications request documents and data related to pricing strategies, discount approval processes, customer contract terms (including notice periods, termination provisions, and implementation timelines), barriers to entry and expansion, and historical evidence of entry and exit in the relevant markets.
(d) Integration and Combination Planning Documents (Specifications 27–32). These specifications are directed at documents reflecting plans for integrating Pinnacle and Meridian post-closing, including synergy analyses, organizational planning, product roadmap integration, customer migration strategies, and any assessments of competitive effects resulting from the combination.
(e) Financial Projections and Strategic Plans (Specifications 33–40). These specifications seek business plans, strategic plans, annual budgets, financial projections, board presentations, investor presentations, and any documents reflecting assessments of market trends, growth opportunities, and competitive positioning in the relevant markets.
(f) Structured Data Submissions (Specifications 41–47). Seven specifications requiring the production of structured data in specified formats, covering sales transaction data, pricing data, customer lists, win/loss data, market share estimates, financial data, and product feature comparison matrices.
The Second Request encompasses both document requests and data requests and applies to both the Solara side (including Solara GP, Fund IV, and Meridian) and the Pinnacle side. Coordinated compliance is essential to ensure consistency in productions, avoid duplication, and present a unified factual record to FTC staff.
A high-level summary table of all forty-seven specifications, organized by category, is attached as Appendix A. The full text of the Second Request is on file at Calderwood & Harkness and is available for client review upon request.
B. Relevant FTC Theories of Harm
Based on our review of the Second Request specifications, our initial conference call with FTC Mergers IV staff on May 30, 2023, and our experience with prior FTC investigations in the enterprise software sector, we have identified two principal theories of harm that the FTC is likely to pursue:
Horizontal Overlap Theory. The FTC's primary concern is that both Pinnacle and Meridian offer portfolio analytics functionality to institutional asset managers. Under this theory, the FTC would define a relevant product market limited to cloud-based portfolio analytics and performance attribution software sold to institutional investors on a SaaS basis. Within this market, the FTC would argue that Pinnacle and Meridian are significant direct competitors, and that the Transaction would eliminate head-to-head competition between them, potentially resulting in unilateral or coordinated competitive effects, including increased pricing, reduced innovation, or diminished product quality.
The strength of this theory depends heavily on the relevant market definition adopted. Under the narrowest plausible market definition — limited to cloud-based portfolio analytics and performance attribution software for institutional asset managers in North America — the combined entity would hold a share of approximately 17.74% (based on combined analytics revenue of $326.4 million against an estimated NA analytics segment TAM of $1.84 billion). While this share level is generally below the thresholds that typically trigger enforcement under the 2010 Horizontal Merger Guidelines (as revised), the FTC may argue that the Transaction reduces the number of significant competitors in an already concentrated segment, or that Pinnacle and Meridian are particularly close substitutes.
Vertical Foreclosure Theory. The FTC's secondary concern relates to the vertical relationship between Meridian's OMS/EMS platform and Pinnacle's analytics tools. Post-merger, the combined entity would control both the trade order management layer (Meridian) and the portfolio analytics layer (Pinnacle) of the institutional investment technology stack. The FTC may argue that the merged firm could:
(i) foreclose competing analytics providers by denying them access to Meridian's order flow data, which may be necessary for accurate real-time performance attribution and analytics; or
(ii) foreclose competing OMS providers by making Pinnacle's analytics functionality available exclusively or preferentially through Meridian's OMS, thereby degrading the value of competing OMS platforms that currently interoperate with Pinnacle's analytics tools.
Our preliminary assessment of the available counterarguments is as follows:
(1) Broader Relevant Market. We believe the relevant product market should properly include not only cloud-based SaaS analytics platforms but also on-premise legacy analytics systems (which continue to serve a significant base of institutional investors, particularly among large pension funds and insurance companies with established technology infrastructures), multi-asset class risk platforms with integrated analytics functionality (such as those offered by established risk management firms), and general-purpose business intelligence tools that are increasingly adopted by institutional investors for performance measurement and attribution. Including these adjacent products and delivery models would significantly expand the relevant market and reduce the combined entity's market share.
(2) Low Combined Market Share. Even under the narrowest plausible market definition, the combined share is under 18% (Pinnacle approximately 12.4%, Meridian analytics approximately 5.2%, for a combined 17.74% of a $1.84 billion NA analytics segment TAM). This share level is well below the 30% threshold typically associated with presumptive anticompetitive effects in differentiated product markets.
(3) Open-Architecture APIs and Interoperability. Both Pinnacle and Meridian maintain open-architecture APIs that currently interoperate with at least nine competing OMS and analytics platforms. This existing interoperability architecture negates the technical ability to foreclose competitors, and the economic incentive analysis is expected to demonstrate that any foreclosure strategy would be unprofitable given the significant risk of customer defection and the ready availability of competing integration alternatives.
(4) Numerous Vigorous Competitors. The relevant markets include numerous well-funded, established competitors, including Marlowe Asset Management Analytics Corp. (with an estimated market share of approximately 16%), Arclight Data Systems (approximately 14%), and at least twelve additional firms each holding more than 1% market share. Several of these competitors have recently made significant investments in product development and have expanded their customer bases. The competitive landscape is dynamic and growing, and the Transaction is unlikely to diminish competitive vigor.
In terms of market sizing, the combined analytics revenue of the merged entity would be approximately $326.4 million ($289 million from Pinnacle plus $37.4 million from Meridian). The North American analytics segment TAM is estimated at $1.84 billion, and the global TAM for institutional investment technology is estimated at $11.8 billion, with North America accounting for approximately $6.2 billion. These figures underscore the fragmented and competitive nature of the markets at issue.
We will develop these counterarguments in detail through the Economic Submission and advocacy presentations described in Sections VIII.D and XI below.
IV. Compliance Team and Roles
A. Calderwood & Harkness LLP Engagement Team
Calderwood & Harkness's team for the Second Request compliance effort will consist of the following professionals, each with defined responsibilities:
Howard Bellamy — Responsible Partner & Billing Partner. Mr. Bellamy will serve as the lead partner on the engagement, with overall responsibility for compliance strategy, direct communications with FTC Mergers IV Division staff attorneys and management, the design and execution of the advocacy strategy (including the Economic Submission and advocacy presentations), and senior-level client communications. Mr. Bellamy has led Second Request compliance efforts in more than twenty matters before the FTC and DOJ, including several transactions in the enterprise software and financial technology sectors. He will serve as the primary point of contact for all substantive interactions with the Commission.
Monica Reyes — Lead Associate. Ms. Reyes will serve as the lead associate responsible for day-to-day management of the compliance effort. Her responsibilities include custodian coordination and interview management, oversight of the document review process, supervision of privilege review and logging, coordination of structured data submissions, drafting of all submissions and correspondence to the FTC, and regular status reporting to the client. Ms. Reyes has significant experience with Second Request compliance, having served as the lead associate on four prior matters during her seven years at the firm.
Elliot Nguyen — Working Associate. Mr. Nguyen, a fourth-year associate in the Antitrust & Competition Group, will support Ms. Reyes across all aspects of the compliance effort. His primary responsibilities will include oversight of the contract document review team, coordination of data submission assembly, legal research in support of the Economic Submission and advocacy materials, and quality control review of document productions. Mr. Nguyen will also serve as the day-to-day liaison with the Keymark Document Solutions project management team.
Tamara J. Westbrook — Of Counsel, E-discovery. Ms. Westbrook, an experienced e-discovery specialist, will be responsible for the design and implementation of all e-discovery technology and protocols, including collection methodology, processing workflows, the Relativity environment configuration, search term development, technology-assisted review ("TAR") and continuous active learning ("CAL") protocols, and vendor management. Ms. Westbrook will work directly with Keymark's project manager, Daniel S. Fong, to ensure that document processing, de-duplication, analytics, and hosting meet the exacting standards required for Second Request compliance.
Dr. Arvind Chakrabarti — Senior Economist, Calderwood & Harkness Economic Consulting. Dr. Chakrabarti, a Ph.D. economist and former FTC Bureau of Economics staff member, will lead the economic analysis workstream. His responsibilities include market definition analysis, competitive effects modeling, the preparation of the Economic Submission (white paper) to be filed with FTC staff, quantitative data analysis in support of structured data submissions, and participation in advocacy presentations. Dr. Chakrabarti brings particular expertise in the economics of enterprise software markets and two-sided platform competition.
B. E-discovery Vendor
The e-discovery vendor for the Solara-side compliance effort will be Keymark Document Solutions LLC, located at 7600 Leesburg Pike, Suite 320, Falls Church, VA 22043. The designated Keymark project manager is Daniel S. Fong, with whom Calderwood & Harkness has worked on three prior Second Request matters.
Keymark will provide the following services:
• Forensic document collection from all Solara-side custodians in accordance with defensible collection protocols;
• Document processing, including extraction, indexing, and metadata preservation;
• De-duplication (both exact and near-duplicate identification) using hash-value and text-similarity algorithms;
• Hosting of the review database in a secure Relativity environment, including configuration of review workflows, tag panels, and reporting dashboards;
• Deployment and management of analytics-assisted review tools, including TAR/CAL models for responsiveness prioritization and privilege detection;
• Staffing and management of a team of twenty-two (22) contract review attorneys for first-level responsiveness and privilege review; and
• Project management, quality assurance, and production formatting services throughout the engagement.
The engagement of Keymark will be formalized immediately, with a detailed Statement of Work to be executed by June 5, 2023, covering processing, hosting, analytics-assisted review, contract reviewer staffing, and all associated costs. The Statement of Work will include service-level commitments regarding processing turnaround times, hosting availability, and review team productivity metrics.
C. Client-Side Points of Contact
Effective compliance requires the active participation and cooperation of designated internal client contacts. The following individuals will serve as primary points of contact on the client side:
Solara GP / Fund IV: Graham A. Whitfield and Sandra K. Levinson will maintain overall oversight of the compliance effort from the client's perspective. In addition, Solara should designate an internal liaison from the investment team (ideally a senior member of the deal team that managed the Pinnacle acquisition process) to coordinate custodian interviews, document collection activities, and the identification of responsive structured data. This individual should have authority to direct Solara personnel to cooperate fully with the collection and interview process and should be available for regular communication with Calderwood & Harkness.
Meridian Workflow Solutions, Inc.: Priya N. Raghavan (CEO) will serve as the primary internal liaison for all Meridian-side document collection, custodian identification, and data compilation activities. Given the significance of Meridian's analytics module to the FTC's competitive analysis, Ms. Raghavan's engagement will be critical. We recommend that Ms. Raghavan designate a senior member of her executive team (ideally the head of product or CTO) to serve as day-to-day Meridian contact for operational collection matters.
Pinnacle Cloud Systems, Inc. (coordination only): Pinnacle's Second Request compliance is handled independently by Hargrove, Pelletier & Stein LLP, as antitrust counsel to Pinnacle and the Sellers. Pinnacle General Counsel Marcus E. Culberson will serve as the internal Pinnacle liaison for coordination purposes. Calderwood & Harkness will not direct or manage Pinnacle's compliance effort but will coordinate closely with HPS on timing, data formatting, joint data submissions, and advocacy strategy, as described in detail in Section IX below.
V. Custodian Identification
The identification of appropriate custodians — the individuals whose documents and communications will be collected, reviewed, and produced in response to the Second Request — is a critical threshold step in the compliance process. The custodian list must be sufficiently inclusive to capture all responsive documents that a reasonable search would locate, while avoiding unnecessary over-collection that would drive up costs and delay the review timeline. Below, we set forth our proposed custodian selections for the Solara side and describe the expected Pinnacle-side custodians.
A. Solara-Side Custodians (18 Total)
We propose a total of eighteen (18) Solara-side custodians, comprised of twelve (12) individuals from Solara GP / Fund IV and six (6) individuals from Meridian.
Solara GP / Fund IV Management and Investment Team: 12 Custodians
The twelve Solara GP / Fund IV custodians will include the following:
• Graham A. Whitfield — Founding Partner & CEO, Solara Digital Infrastructure GP LLC. As the senior-most executive at Solara and the chair of Fund IV's Investment Committee, Mr. Whitfield is certain to possess documents responsive to the Transaction, including investment committee materials, strategic rationale analyses, board communications, and correspondence with advisors and counterparties.
• Sandra K. Levinson — Co-Managing Partner & CIO, Solara Digital Infrastructure GP LLC. Ms. Levinson leads Solara's investment activities and oversees portfolio management across all four funds. She was centrally involved in the evaluation of the Pinnacle acquisition, the development of the integration thesis with Meridian, and the negotiation of key deal terms. Her files are expected to contain significant responsive material.
The remaining ten Solara GP / Fund IV custodians will be drawn from the following categories and selected based on their likelihood of possessing responsive documents:
• Members of the deal team that evaluated, diligenced, and negotiated the Pinnacle acquisition, including deal leads, associates, and any vice presidents or principals who prepared investment memoranda or conducted competitive analyses;
• Members of the Investment Committee who reviewed and approved the Pinnacle transaction, to the extent not already captured above;
• Operating partners or portfolio operations professionals who participated in integration planning discussions, developed synergy models, or assessed the operational combination of Pinnacle and Meridian;
• Any individual at Solara who was involved in managing the Meridian investment and who may have documents reflecting Meridian's competitive positioning, analytics module strategy, customer overlap with Pinnacle, or assessments of the portfolio analytics market; and
• Any individual who communicated with the financial advisor (Redstone Advisory Group), the financing source (Briarcliff National Bank), or outside counsel regarding competitive dynamics or regulatory strategy for the Transaction.
The specific custodian selections within these categories will be finalized upon completion of the custodian identification interviews, which are scheduled to begin the week of June 5, 2023. A detailed custodian list with names, titles, organizational affiliations, and rationales for inclusion is set forth in Appendix B (in draft form, to be finalized upon completion of interviews).
Meridian Management: 6 Custodians
The six Meridian custodians will include the following:
• Priya N. Raghavan — CEO, Meridian Workflow Solutions, Inc. As the chief executive of the portfolio company most directly implicated in the FTC's competitive analysis, Ms. Raghavan is expected to possess significant responsive documents, including strategic plans, competitive analyses, customer communications, board presentations, and correspondence with Solara's portfolio operations team.
The remaining five Meridian custodians will be selected from the following roles, based on the individuals' likelihood of possessing responsive documents regarding Meridian's analytics module, competitive positioning vis-à-vis Pinnacle, customer feedback, pricing, and product development:
• Head of Product or VP of Product Management, responsible for Meridian's analytics module roadmap and competitive feature analysis;
• Head of Sales or VP of Business Development, responsible for customer-facing competitive positioning, win/loss tracking, and customer feedback on analytics capabilities;
• Chief Technology Officer (CTO), responsible for technical architecture, API interoperability, and product integration planning;
• Chief Financial Officer (CFO), responsible for financial projections, segment reporting, and pricing strategy for the analytics module; and
• Any other senior executive who has been directly involved in assessing the competitive landscape for portfolio analytics or in discussions regarding the potential combination with Pinnacle.
Selection criteria for all Meridian custodians will focus on identifying individuals with knowledge of: (i) Meridian's analytics module functionality, competitive positioning, and roadmap; (ii) head-to-head competitive encounters with Pinnacle, Marlowe Asset Management Analytics, Arclight Data Systems, or other identified competitors; (iii) customer overlap between Meridian and Pinnacle; (iv) pricing strategy and customer feedback regarding the analytics module; and (v) any integration planning or discussions with Solara regarding the Pinnacle transaction.
B. Pinnacle-Side Custodians (14 Total)
Pinnacle's custodian identification is being managed independently by Hargrove, Pelletier & Stein LLP in consultation with Pinnacle's General Counsel, Marcus E. Culberson. We understand that HPS expects to propose approximately fourteen (14) custodians on the Pinnacle side, which we believe is a reasonable number given Pinnacle's organizational size and the scope of the Second Request specifications.
We anticipate that the Pinnacle custodian list will include the following key individuals:
• Nathaniel R. Okonkwo, CEO;
• Diane M. Hartwell, CFO;
• Marcus E. Culberson, General Counsel;
• Additional senior officers and directors with responsibility for product strategy, sales and marketing, competitive intelligence, customer relationships, and corporate development.
Calderwood & Harkness will coordinate with HPS to ensure consistency in custodian selection methodology, including alignment on: (i) the criteria used to evaluate whether an individual's documents are likely to be responsive; (ii) the date ranges applicable to custodial collections; and (iii) the scope of collection from each custodian (e.g., which data sources will be collected). This coordination is important to ensure that the two sides' productions present a consistent and comprehensive factual record to FTC staff.
C. Custodian Negotiation with FTC Staff
It is standard practice for FTC staff to review and comment on the proposed custodian lists submitted by the parties. We anticipate that FTC Mergers IV staff may request the addition of specific custodians, challenge the scope of collection for particular individuals, or raise concerns about potential gaps in coverage. Common areas of FTC scrutiny include:
• Whether all members of the investment committee and deal team have been included;
• Whether appropriate product, sales, and marketing personnel from both Pinnacle and Meridian have been captured;
• Whether any individuals who participated in integration planning discussions or prepared synergy analyses have been omitted; and
• Whether any non-officer employees (e.g., data scientists, product managers, or sales representatives) with relevant competitive intelligence knowledge should be added.
To address these potential challenges, we plan to engage in early, proactive dialogue with FTC staff regarding the custodian list, ideally during the first two weeks of June. Our objective is to reach agreement on the custodian list as expeditiously as possible to avoid delays in the collection process. Where the FTC requests additional custodians, we will evaluate each request on its merits and, where appropriate, propose alternative approaches (such as targeted search term collections from additional custodians in lieu of full forensic collection) that can achieve the FTC's investigative objectives while minimizing unnecessary burden and cost.
VI. Document Collection Methodology
A. Data Sources
Comprehensive collection from all identified custodians will encompass the following data sources:
Email. Email is expected to constitute the largest single category of collected documents. For Solara GP / Fund IV custodians, we will collect from the Strathmore Data Systems / Outlook environment that serves as the primary email platform, including any archived mailboxes, .PST files, and any cloud-hosted email repositories. For Meridian custodians, we will similarly collect from Meridian's enterprise email platform (which we understand is also a Strathmore Data Systems / Outlook environment). In both cases, collection will encompass all emails sent, received, and drafts within the relevant date range, including calendar items where responsive.
Shared Network Drives and Cloud Storage. For both Solara and Meridian, we will identify and collect from relevant shared network drives, shared folders, and cloud storage platforms, including Aldermere Systems sites, Cobalt Ridge Systems accounts, and Hollowell Health IT (if applicable). These repositories frequently contain shared work product such as investment memoranda, board presentations, competitive analyses, strategic plans, and financial models that are highly likely to be responsive.
Messaging Platforms. Modern enterprise communication increasingly occurs through instant messaging platforms such as Meridian Solutions and Northgate Data Systems. We will work with Solara's and Meridian's IT departments to identify whether any custodians have used such platforms for business communications and, where relevant, collect message history from those platforms. FTC staff have increasingly focused on ephemeral messaging and informal communication channels in recent Second Request investigations, and it is important that our collection be comprehensive in this regard.
Personal Devices. For key custodians — particularly senior executives and deal team leads — we will evaluate whether collection from personal devices (laptops, tablets, and mobile phones) is necessary. Where custodians have used personal devices for business communications (including personal email accounts, text messages, or messaging applications such as Meridian Services Inc. or signal), we will conduct targeted forensic collection from those devices. This is an area of increasing FTC scrutiny, and we will work with each custodian to ensure that all responsive materials are captured regardless of the device or platform on which they reside.
Cloud Repositories and Document Management Systems. We will also collect from any enterprise document management systems (such as Tidewater Systems, Vireo Data Systems, or similar platforms) used by Solara or Meridian to store deal-related materials, legal documents, or strategic planning files. Additionally, we will assess whether any relevant materials reside in cloud-based collaboration tools (such as confluence, Notion, or similar platforms) used by product or engineering teams.
B. Date Range
The applicable date range for collection will be determined by the specific requirements of each Second Request specification. Based on our review of the specifications and our experience with prior FTC Second Requests in the enterprise software sector, we anticipate that the relevant period will span approximately three to five years prior to the HSR filing date. Accordingly, we expect the primary collection period to run from approximately January 1, 2020 (or earlier, for certain specifications relating to long-term strategic plans or market entry analysis) through the present. The exact date range for each specification will be confirmed following our initial dialogue with FTC staff regarding compliance methodology, and may be subject to negotiation.
For certain categories of documents — particularly integration planning and deal-specific materials — the relevant period may be narrower, limited to the period beginning with Solara's initial evaluation of the Pinnacle acquisition opportunity. For other categories, such as strategic plans and competitive analyses that predate the Transaction, the FTC may request a longer look-back period. We will negotiate the appropriate date ranges on a specification-by-specification basis.
C. Collection Process
All document collection will be performed using forensic collection protocols implemented by Keymark Document Solutions LLC, in coordination with Calderwood & Harkness's e-discovery team. The collection process will adhere to the following standards:
Forensic Imaging and Collection. For custodians' workstations, laptops, and mobile devices, Keymark will employ forensically sound collection methodologies that preserve file metadata (including creation dates, modification dates, author information, and file paths) and maintain chain of custody integrity. All collection activities will be documented in detailed collection logs, including the identity of the collecting technician, the date and time of collection, the source device or repository, and the hash values of collected data sets.
Chain of Custody Documentation. Keymark will maintain a complete chain of custody record for all collected data from the point of collection through processing, hosting, review, and production. This documentation will be available for inspection by FTC staff if requested.
Processing. Collected data will be processed through Keymark's document processing pipeline and ingested into a hosted Relativity environment. Processing will include text extraction, metadata extraction, email threading, and the identification of embedded files and attachments. Documents will be assigned unique document identifiers upon processing to enable tracking throughout the review and production workflow.
De-Duplication. Keymark will apply both exact de-duplication (based on MD5 and SHA-1 hash values) and near-duplicate identification algorithms to reduce the review population. De-duplication will be performed at the custodian level (i.e., duplicates within a single custodian's collection) and, where appropriate, at the global level (i.e., duplicates across custodians) in accordance with the FTC's requirements. We note that certain FTC staff attorneys have expressed preferences regarding custodial versus global de-duplication, and we will confirm the acceptable approach during our initial compliance methodology discussions.
Date Filtering, File-Type Filtering, and Domain Filtering. Following de-duplication, the review population will be further reduced through the application of date range filters (to exclude documents outside the relevant period), file-type filters (to exclude non-responsive system files, executables, and other file types not likely to contain responsive content), and domain filters (to exclude emails from clearly non-responsive domains, such as mass marketing emails, automated system notifications, and social media alerts). The specific filters to be applied will be documented and preserved in the event of FTC inquiry.
D. Estimated Document Volumes
Based on our preliminary assessment of the number and types of custodians, the data sources to be collected, and our experience with comparable Second Request matters involving enterprise software companies and private equity sponsors, we estimate the following document volumes for the Solara-side compliance effort:
These are preliminary estimates that will be refined as collection progresses and the actual data volumes become known. The final review population will depend on the effectiveness of de-duplication and filtering, the scope of any negotiated limitations on collection, and the actual volume of data maintained by each custodian. The production volume will depend on responsiveness rates, which typically range from 25% to 45% in Second Request matters of this nature.
E. Structured Data Submissions
The Second Request includes seven (7) structured data specifications (Specifications 41–47) requiring the production of data in defined formats. These structured data submissions span both Pinnacle and Meridian and cover the following categories:
1. Sales Transaction Data: Detailed transaction-level sales data for Pinnacle and Meridian analytics products, including contract values, effective dates, renewal dates, customer identifiers, and product descriptions.
2. Pricing Data: Pricing schedules, discount matrices, list prices, and realized prices for all analytics-related products and services offered by Pinnacle and Meridian.
3. Customer Lists: Comprehensive customer lists for Pinnacle and Meridian, including customer name, industry classification, contract value, product modules subscribed, contract start and end dates, and any customer overlap identification.
4. Win/Loss Data: Records of competitive situations in which Pinnacle or Meridian competed for the same customer or contract, including the identity of the winning vendor, the competing vendors, and any available reason codes or feedback regarding the outcome.
5. Market Share Estimates: Any internal estimates, analyses, or assessments of market share for Pinnacle, Meridian, or their competitors in portfolio analytics, performance attribution, order management, or related product categories.
6. Financial Data: Revenue, cost, and profitability data for Pinnacle and Meridian, broken down by product line, customer segment, and geographic region, for the relevant period.
7. Product Feature Matrices: Detailed product feature comparison matrices reflecting the functionality of Pinnacle's and Meridian's analytics products relative to competing products.
Coordination with Pinnacle's counsel at HPS is essential for the structured data submissions, as several specifications (particularly customer lists, win/loss data, and product feature matrices) will require jointly formatted submissions to enable FTC staff to conduct cross-party analyses. We will work with HPS to establish common data formatting standards, field definitions, and submission protocols.
Dr. Arvind Chakrabarti will oversee the compilation and quality control of all structured data submissions, ensuring accuracy, completeness, and consistency with the economic arguments we intend to advance in the Economic Submission. Data quality is critical, as errors or inconsistencies in structured data submissions can undermine credibility with FTC staff and create unnecessary complications during the advocacy phase.
VII. Privilege Review Framework
The privilege review process is among the most time-intensive and legally consequential aspects of Second Request compliance. Documents protected by the attorney-client privilege or the work product doctrine must be identified, withheld from production, and logged on a privilege log with sufficient specificity to allow FTC staff to assess the validity of each privilege claim. Given the volume of documents at issue and the FTC's rigorous approach to privilege challenges, we have designed a multi-layered privilege review framework.
A. Clawback / Non-Waiver Agreement
The single highest-priority action item in the initial phase of compliance is the negotiation and execution of a stipulated non-waiver and clawback agreement with FTC staff. This agreement, modeled on the principles of Federal Rule of Evidence 502(d), will provide that the inadvertent production of documents protected by the attorney-client privilege or work product doctrine shall not constitute a waiver of those protections, and that any such documents may be clawed back upon identification without prejudice.
We target execution of this agreement by approximately June 9, 2023 — within one week of the date of this memorandum. The agreement will be governed by the FTC's Model Stipulated Protective Order, which provides standard protections for confidential business information and includes non-waiver provisions. The execution of this agreement is essential to create a safety net against the significant risk of inadvertent privilege waiver inherent in any large-scale document production involving hundreds of thousands of documents. While we will implement robust privilege review procedures to minimize the risk of inadvertent production, the clawback agreement provides a critical backstop.
The agreement will typically include the following key provisions:
• A statement that the production of documents or information in the course of responding to the Second Request shall not constitute a waiver of any applicable privilege, including but not limited to the attorney-client privilege and the work product doctrine;
• A mechanism for the producing party to notify the FTC upon discovery of any inadvertently produced privileged material, and an obligation on the FTC to promptly return, sequester, or destroy all copies of the identified material;
• A provision that any dispute regarding the privilege status of a clawed-back document shall be resolved by the appropriate court; and
• Reciprocal provisions applicable to any documents produced by FTC staff (to the extent applicable).
B. Privilege Review Protocol
Following the execution of the clawback agreement, we will prepare a comprehensive Privilege Review Protocol and Guidelines memorandum to be distributed to the contract review team at Keymark. This protocol is targeted for completion and distribution by mid-June 2023 (approximately June 15, 2023), in advance of the commencement of first-level document review.
The privilege review protocol will address the following components:
Privilege Categories. The protocol will instruct reviewers on the identification and proper tagging of documents implicating the following privilege categories:
(1) Attorney-Client Privilege: Communications between a client (or the client's representative) and an attorney (or the attorney's representative) made for the purpose of obtaining or providing legal advice, where the communication was intended to be and was in fact kept confidential. For purposes of this review, attorneys include in-house counsel at Solara, Meridian, and Pinnacle, as well as outside counsel at Calderwood & Harkness, Ashford Crane, Hargrove Pelletier & Stein, and any other law firms engaged by the parties.
(2) Work Product Doctrine: Documents and tangible things prepared by or for a party's attorney in anticipation of litigation or for trial, including attorney mental impressions, conclusions, opinions, and legal theories. This category includes, but is not limited to, litigation hold notices, attorney memoranda analyzing legal risks, and draft documents reflecting attorney input or editorial commentary.
(3) Joint Defense / Common Interest Privilege: Communications between counsel for Solara and counsel for Pinnacle (or the Sellers) made pursuant to a common legal interest in the Transaction, to the extent such communications are protected under a joint defense or common interest agreement. We will evaluate whether a formal joint defense agreement has been or should be executed between Calderwood & Harkness and HPS.