A Kirkland, Wash.-based tech firm is suing its New York-based acquisition advisor, alleging it was pushed right into a $5.2 million acquisition that was purported to generate $1 million yearly however has as an alternative required ongoing money infusions simply to remain afloat.
The lawsuit, filed on behalf of SmarTek21, a longtime expertise consulting companies agency, accuses TGP GP Administration of “egregiously faulty due diligence” in its Might 2025 acquisition of IT Avalon, one other U.S.-based tech consulting firm.
In keeping with the criticism, Tortuga Progress Companions, a New York-based personal fairness agency, acquired a minority stake in SmarTek21 in 2024. Its affiliate, TGP GP Administration, a administration and acquisition advisory agency, entered into an settlement to advise SmarTek21 on acquisitions and associated issues.
TGP responded in a press release: “TGP strongly disputes the allegations on this criticism and stands by the excellent due diligence course of carried out for the IT Avalon acquisition.”
The lawsuit was filed Dec. 18 in King County Superior Court docket in Seattle by Totem Lake Investments II, the bulk proprietor of SmarTek21. Totem Lake Investments is led by SmarTek21 CEO Alkarim Lalji. The go well with seeks not less than $6 million in damages, plus punitive damages and different reduction.
In keeping with the criticism, TGP virtually instantly started pressuring SmarTek21 to accumulate IT Avalon, as a complementary enterprise that will increase SmarTek21’s current mannequin and diversify its buyer base. The go well with says TGP represented that IT Avalon would generate not less than $1 million yearly in free money movement, earlier than different advantages from the mix.
The criticism alleges that TGP’s principal Ashray Prasad dismissed considerations raised by SmarTek21 executives about IT Avalon’s deteriorating funds within the days earlier than closing. In keeping with the go well with, Prasad repeatedly referred to as Lalji urging him to shut the deal — putting many of those calls whereas Lalji was present process remedy for a critical medical situation.
The lawsuit alleges TGP pursued the IT Avalon acquisition out of “enthusiasm for transaction charges, publicity, and the looks of fast deal-making.”
In keeping with the go well with, IT Avalon’s income had been declining since 2022, and its working revenue had dropped considerably, whereas its vendor relationships deteriorated.
TGP structured the deal in order that any working capital shortfall could be offset in opposition to future earnout funds to IT Avalon’s sellers. However that proved nugatory, the go well with alleges, as a result of IT Avalon had virtually no likelihood of hitting the income targets that will set off these funds.
In its assertion, TGP disputed these claims.
“IT Avalon is a robust expertise enterprise with invaluable shopper relationships,” it stated. “The mixed entity now advantages from an expanded shopper base, proficient personnel, and a sturdy pipeline of alternatives. We intend to vigorously defend in opposition to these baseless claims.”
The dispute illustrates the difficult nature of personal equity-led expertise roll-up methods, through which smaller corporations are mixed to create bigger platforms.
The acquisition of IT Avalon in Might was the second in six months for SmarTek21, following its earlier mixture with Retro Rabbit, a South Africa-based product design agency, based on a press launch by Tortuga Progress Companions asserting the IT Avalon deal on the time.
“We’re constructing a category-defining platform,” stated TGP’s Prasad, who can be a member of SmarTek21’s board of managers, within the press launch. He added that the completion of the second acquisition over that timeframe mirrored “the momentum behind SmarTek21’s progress.”
In keeping with the corporate’s public supplies, SmarTek21 supplies product engineering and enterprise software program companies to Fortune 250 shoppers in industries together with monetary companies, healthcare, and telecom. It says it has greater than 650 associates throughout the U.S., India, and South Africa.
IT Avalon, based in 2012, supplies expertise consulting companies to shoppers in monetary companies, healthcare, gaming, and hospitality. The Might press launch asserting the deal described the corporate as having a 95% shopper retention charge.
Lalji and SmarTek21 didn’t reply to requests for remark. See the complete criticism under.
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