How Dominion’s Owner Turned a $38 Million Investment Into a Windfall Settlement With Fox News Staple Street Capital backed a defamation lawsuit that produced a $787.5 million settlement By Sarah Krouse April 20, 2023 3:23 pm ET Hootan Yaghoobzadeh, a Staple Street co-founder, speaking at a news conference in Wilmington, Del., this week. Photo: Saquan Stimpson/Zuma Press When Staple Street Capital invested in Dominion Voting Systems in 2018, the New York private-equity firm foresaw potential risks if the company’s voting machines malfunctioned. It didn’t imagine Dominion would be falsely accused of helping to rig a presidential election. Dominion this week reached a $787.5 million settlement in its defamation suit against Fox News parent Fox Corp. FOX -0.55%decrease; red down pointing triangle over the network’s 2020 broadcasts that amplified false election-fraud charges. The settlement is a windfall for Staple Street, which paid $38 million for a 76% stake in the business through two private-equity funds. Hootan Yaghoobzadeh, a Staple Street co-founder, recalls watching a Fox segment on Nov. 8, 2020, in which former Trump associate Sidney Powell appeared on Fox host Maria Bartiromo’s show and falsely claimed Dominion’s voting software enabled voting fraud. “We never thought that that could ever happen to us, nor should we,” he said. “We were in absolute crisis mode and our world had just changed.” NEWSLETTER SIGN-UP What’s News Catch up on the headlines, understand the news and make better decisions, free in your inbox every day. Subscribed Proceeds from the settlement, after legal fees and taxes, will be shared among Dominion shareholders, including Staple Street and managers and employees who own stakes. A spokeswoman said the company isn’t disclosing how much Staple Street’s funds will receive. Private-equity firms typically hold investments for three to five years and seldom risk hefty legal fees or reputational damage from court battles, said Oliver Gottschalg, a strategy and business policy professor at HEC Business School in Paris. “This is very, very, very, very exceptional,” Mr. Gottschalg said. Advertisement - Scroll to Continue Fox News, Dominion Settle Defamation Suit for $787.5 Million YOU MAY ALSO LIKE Fox News, Dominion Settle Defamation Suit for $787.5 MillionPlay video: Fox News, Dominion Settle Defamation Suit for $787.5 Million Photo: Mark Makela/Reuters While some hedge funds and litigation-finance firms generate returns by funding and seeking litigation, that has never been core to Staple Street’s approach. It seeks to buy undervalued, middle-market companies and help them accelerate growth and strengthen their businesses. Fox News has previously said that Dominion’s litigation was a “political crusade in search of a financial windfall,” and that the real cost of it was to First Amendment rights. Fox said it was pleased to reach a settlement with Dominion. Fox Corp. shares common ownership with Wall Street Journal parent News Corp. Mr. Yaghoobzadeh and co-founder Stephen D. Owens met early in their careers at private-equity firm Carlyle Group, where they had adjacent offices and became friends. They stayed in touch and launched the firm in 2010, naming it after a short street in the Tribeca neighborhood of Manhattan near where they would meet for coffee. The company had $956 million in assets under management across four private funds at the end of 2022, and invests in companies with revenue of $50 million to $500 million, according to regulatory filings and the firm’s website. Over the life of the firm, returns have been in the 20% range, Mr. Yaghoobzadeh said. Staple Street has invested in companies including flower bulb distributor Garden State Bulb, IT provider Cyberlink and Eastern Dental Management. It used to be an investor in amusement parks company Six Flags Entertainment Corp. The firm’s funds generally require a $5 million minimum commitment from investors and have a fee model typical of private equity—Staple Street gets a management fee of up to 2%, plus upside from investment profits and other deal and portfolio service fees. Among its investors are endowments, high-net-worth individuals and private-equity funds that invest in other funds. Staple Street heard about Dominion through an auction run by an investment bank in 2017. After Dominion Chief Executive John Poulos shared his vision for the company over dinner with Mr. Yaghoobzadeh in Toronto, Staple Street’s leaders were convinced that the company was an interesting investment opportunity. Dominion’s products span hardware and software that election officials globally can use to run elections. Its tools help municipalities build ballots, collect votes, scan paper ballots, tabulate votes and audit results. Mr. Yaghoobzadeh said Dominion had a 35% market share at the time in a hard-to-enter, recession-proof industry. The private-equity firm bought its majority stake in 2018. Dominion doesn’t disclose detailed financial results. In the two years after Staple Street’s investment, Dominion’s earnings before interest, taxes, depreciation and amortization grew to $45 million from $10 million, said Mr. Yaghoobzadeh. The 2020 false election-fraud claims on Fox News came as Dominion and Staple Street were making progress toward their goal of accelerating growth, he said. A Fox court filing said Dominion projected to its lender in September 2020 that it would have $70.8 million in 2023 revenue, compared with $85 million in 2022 and $78.9 million in 2021. Dominion filed its lawsuit in Delaware in March of 2021. Fox argued that the damages Dominion sought in the case, $1.6 billion, were excessive and that its business wasn’t harmed by Fox’s broadcasts. Mr. Yaghoobzadeh recalls reading materials during the discovery process—at a time when few people other than management and lawyers had access to the trove of documents—and thinking, “This has to come out. It just has to come out.” Those documents, some of which became public in the legal proceedings, showed several Fox insiders were deeply skeptical of the false election claims being aired on Fox networks, but also worried about a backlash from viewers after Fox declared Joe Biden the winner of the election. Mr. Yaghoobzadeh said the word “settlement” was akin to a curse word within Dominion’s team before the judge issued a ruling late last month that cleared the way for a trial. In that ruling, the judge held that Fox had made false claims about the voting-machine company. Many legal observers said Dominion had a strong case that it was defamed but faced the risk that a jury wouldn’t award a large amount in damages. Fox had attempted to reach a settlement for some time, the Journal reported. The Dominion team pressed until they felt three criteria had been met: exposing the truth, creating accountability and getting compensated for the alleged damage inflicted, according to Mr. Yaghoobzadeh. Mr. Poulos thanked Staple Street after the settlement, saying the firm was “unconditional in their support to Dominion and our customers.” Dominion has also filed defamation suits against two Fox rivals, Newsmax and Herring Networks Inc.’s One America News Network. Those suits are ongoing. OAN has denied the allegations. A Newsmax spokesman said the company stands by its coverage and analysis of the 2020 election and will “continue to vigorously defend against the claim.” “Newsmax believes that the facts at issue in Dominion’s case against it are materially different from those that may have driven Fox to settle and no conclusion about Newsmax should be drawn from that settlement,” he said. Mr. Yaghoobzadeh said decisions about Dominion’s future, including whether to sell the company, are on hold while the court battles play out. Isabella Simonetti contributed to this article.
I wonder whether this initial investment was sparked by clever forward thinking, taking into account the political climate or by more obscure rational. It's not everyday that hedge funds or private equity firms invest in vote counting machines. Though at this point we can probably be pretty sure that Fox lawyers crawled into the intestines of every single of their employees to ensure there wasn't any foul play in place.