The lines between shareholder activist strategies and traditional private equity strategies are starting to become blurred.
Historically, private equity firms have adhered to the “rules of the road” set out by companies looking to explore strategic alternatives or realise monetisation events for their equity holders.
The company, after approval from its board, engages a financial advisor and the firm is approached by the bankers to do a deal on, generally, the company’s timeline. They follow the auction process set out by the company and its advisors and look to gain support of the board for their proposed transaction terms. Once the deal is signed, the board recommends the transaction to its stockholders, fully aware of the buyout firm’s intentions. Until the time of execution, the buyout firm’s interest stays out of the public eye. Most importantly, the deal is “friendly”: a buyout firm will not proceed in a transaction without support of the company’s board. This strategy has allowed private equity (PE) firms to monopolise potential value creation at cheap, underperforming companies.
Activist firms, on the other hand, have traditionally taken a different approach, looking to gain a toehold by acquiring an equity position without the board’s consent and effecting change by launching campaigns in the public. The activist will take its argument to the stockholders directly and may target board representation or force other strategic initiatives to be undertaken by the company by leveraging public pressure on the board. Recently, however, activists have added more “friendly” buyout initiatives to their strategic arsenal.
