Actionable Ideas for Companies and Sponsors

Private Equity and Activist Investing: A Convergence in Asset Classes

As we begin the new year, the lines drawn between activist investors and traditional private equity continue to blur. Hedge fund activists such as Elliott Management continue to deploy capital to buy entire companies outright, a recent example being Elliott and Veritas Capital’s joint bid for Cubic. At the same time, some PE firms continue to experiment with activist tactics. The public equity arm of private equity firm KKR, known for its management-friendly style, disclosed a rare “activist” 13D filing for a minority stake in Dave & Buster’s, privately negotiating for a Board seat. TPG has raised a new fund to buy minority stakes in public companies and reserves the right to seek board representation alongside constructive engagement on strategic issues.

The convergence of private equity and activist investing persisted throughout the COVID-19 pandemic. In examples of this trend, PE funds used more aggressive activist tactics, including New Mountain Vantage’s public campaign against Virtusa and Cannae Holdings/Senator’s hostile bid and related proxy contest at CoreLogic. In Europe, Cerberus, a traditional private equity firm which historically has refrained from activist tactics, reportedly sent a letter to the Board of Commerzbank stating Cerberus had “serious doubts” about the newly appointed Chairman.

As activist investing has become an accepted asset class over the past two decades, the stigma historically associated with activism has declined and the reputational risks of deploying activist strategies and tactics has also declined. Activist investing offers PE firms the opportunity to deploy capital in an otherwise increasingly competitive investing universe. If PE firms conclude the increased opportunities for capital deployment and related ROI outweigh the reputational risks of adopting a more unsolicited, aggressive style, we should expect to continue to see more activist-like campaigns led by financial sponsors.