A recent case involving the Dutch software company Rodeo highlights these challenges. Rodeo appeared to be a thriving SaaS provider, boasting thousands of customers worldwide and high-profile contracts, including with Alphabet, the parent company of Google. Attracted by these impressive credentials, US-based investment fund PSG Equity agreed to invest approximately EUR 60 million for a 30% stake in Rodeo.
Prior to the investment, Rodeo presented promising figures and customers. However, after the transaction, it emerged that much of Rodeo’s customer and financial data had been falsified. Many of the contracts were forged, and the actual number of customer contracts was only in the hundreds, not thousands as claimed. The founder and director of Rodeo subsequently disappeared.
On June 11, 2025, the Amsterdam District Court annulled the SPA on the grounds of fraud (bedrog), with as a result that the purchase price for the shares must be repaid to PSG Equity. This case is notable, annulment of an SPA on the basis of fraud is often difficult to achieve.
Legal due diligence not fraud-proof
Before entering into an SPA, buyers routinely instruct legal advisors to conduct a due diligence investigation. The aim is to uncover any potential risks and avoid making decisions based on inaccurate or misleading information. PSG Equity, as an experienced private equity investor, duly conducted such an investigation before investing in Rodeo. Yet, the fraud went undetected.
Why did the due diligence process fail in this instance? The answer lies in the inherent limitations of due diligence. When reviewing documents and information provided by the target company, advisors generally assume the accuracy of the materials unless there are clear reasons to doubt them. Accordingly, it is not standard practice to independently verify every contract or customer relationship, especially given the confidential nature of such information. As a result, due diligence is fundamentally based on a degree of mutual trust.
In the Rodeo case, the deception appeared to be sophisticated. Contracts were carefully forged, and customer data was manipulated to present a false picture of the company’s performance. Such deliberate fraud is extremely difficult to detect, even with a thorough due diligence process. The legal due diligence investigation is therefore not infallible. This case also raises questions about the scope and depth of financial due diligence, particularly regarding the verification of financial performance and the role of external accountants.
Take aways
The fraud at Rodeo demonstrates how vulnerable a legal due diligence investigation can be, especially in the tech sector where tangible assets may be limited. For this reason, it is essential that investors and companies carefully consider whether the commercial counterparty on whose information they rely is truly reliable. To ensure this, it may be advisable to compare the legal, financial, and technical due diligence investigations in order to identify any discrepancies that may require further investigation and schedule a specific Q&A session with the company's tech-team and management to avoid solely relying on the provided documents. Additionally, commercial parties can for example request to schedule interviews with the key customers of the company. In the case of Rodeo, such measures could perhaps have prevented the detrimental outcome. Legal advisors would therefore be wise to go one step further and recommend their clients to take such measures if the commercial circumstances so require.
Despite these measures, it remains challenging to prevent intentional misrepresentation in a process that relies heavily on trust. The Rodeo case serves as a cautionary tale for investors and advisors alike: even the most robust due diligence cannot guarantee the absence of fraud, and vigilance must be maintained throughout the transaction process. However, a comprehensive and due diligence process - supported by direct verifications of key commercial relationships and a cross-check of the legal, financial and technical data - provides additional lines of defense to uncover inconsistencies before they evolve. Some situations may call for a proactive approach of the advisors involved.
