February 13, 2025
Activism: Private Equity Dry Powder to Fuel Activist Strategies & Responses
This Paul Weiss memo discusses a variety of factors that may cause activist strategies to evolve over the course of the coming year. This excerpt highlights how the abundance of dry powder at private equity firms may fuel activism – and corporate responses to activism – in 2025:
Private equity dry powder has continued to grow along with the pressure to deploy capital. Expectations of improvements to macroeconomic conditions (potentially including lower interest rates) may add further momentum to the rebound in deal activity seen during the second half of 2024. In anticipation of a return to more favorable market conditions, private equity funds are continuing to explore new opportunities for capital deployment. Minority, or white squires, investments allow private equity funds to opportunistically deploy a moderate amount of capital for an attractive rate of return at companies that have already been identified by activists as targets for operational or strategic change.
While private equity interest in activist targets is not new, such investment strategy may be particularly attractive under current market conditions. Minority stakes, particularly if accumulated through the use of derivatives, allow for a less risky and more flexible pathway to invest in companies that may be too large or too complex to be a suitable buyout target at this time.
Unlike many activist funds, private equity funds also have the operational skillset and a longer-term investment horizon to realize returns. With operational and strategic demands reaching an all-time high in 2024 and likely to persist until the private equity M&A market sees a more significant rebound, activists will continue creating opportunities for private equity firms to “piggy back” off their theses.
KKR’s recent investment in Henry Schein showcases the willingness of PE investors to play the role of a minority “white squire” investor in response to activist campaigns.
Other factors that the memo identifies as potentially shaping activist strategies this year include the return of hostile deals, secular trends fueling the demand for portfolio simplification, and the potential to target CEOs following operational and strategic missteps during a period of increasing uncertainty.
– John Jenkins