February 15, 2019

Activism: More Competition for Private Equity?

PE funds and activists have had a mutually beneficial relationship for years – activists with event-based strategies have pushed companies to do a deal, and PE funds have been more than happy to provide one. But in recent years, some major activists have looked to sponsor their own deals, and according to this recent report from Axios, that strategy is growing in popularity:

Both private equity and activist investor funds are considered alternative asset classes, but the latter is becoming an increasingly popular alternative to the former.

Starboard Value today agreed to invest $200 million into Papa John’s, after the troubled pizza chain failed to secure attractive enough private equity offers during a four-month auction process. The deal also includes another $50 million infusion by the end of March, with Starboard’s Jeffrey Smith being named chairman. Company namesake John Schnatter reportedly voted against the deal, thus extending his recent losing streak.

Elliott Associates, after failing to successfully work with Apollo Global Management on an Arconic takeover, is seeking to raise $2 billion for an actual takeover fund — not so much evolving into private equity but seeking to co-opt it.

The bottom line: Activists for years have helped to create private equity opportunities, by agitating for sales. Now they are beginning to take some of those opportunities themselves.

John Jenkins