Benevolent Hostility
Developing outstanding assets into outstanding companies
Overview
Activist investors act as important intermediaries in capital markets. While an inherent bias in favor of incumbent management may once have existed among institutional investors, this is no longer always the case. Today, open communications with activists can build credibility with shareholders and potentially enhance corporate strategies.
The reason – like M&A acquirers – activists aim to arbitrage the value gap between poor company performance and good company performance. In other words, instead of speculating about future performance, we aim to influence future performance.
Putting the Active In
Attractive Investments
While they have gained notoriety for their contentious approach, activist investors traditionally aim for a collegial “hands on” approach with incumbent management.
We are proud of WSD Capital Management’s role as a positive business catalyst for the companies in our portfolio. We work to identify, invest and engage in difficult and complex situations with the explicit objective to enhance the value of businesses, objectively and expediently, for the benefit of all shareholders.
Targeted Opportunities
Customized Solutions
Significant shareholder value lies hidden in many public companies that is difficult to unlock without commitment and proactive involvement. Accounting consolidation makes many complex businesses look simpler than they really are. This is important given that markets rely on consolidated data for valuation purposes.
The key to our investment approach is the application of the right mix of skill sets to discover and develop the right opportunities:
Value Creation Mindset
Domain Expertise
Transactional Experience
Enhancing value and overcoming the status quo requires support from multiple stakeholders. We help foster such coalitions through the quality of our analysis, our network of institutional contacts and the credibility of our reputation and track record rather than the size of our holdings.
Benevolent Hostility
Efficient capital markets “discipline” companies by punishing poor decisions through declining stock prices, increasing cost of capital, and increasing risk of bankruptcy or being taken over. When capital markets are efficient, prices (labor, capital, and natural resources) are “correct”, which improves decision making.
Our unique activism requires significant capital, rapid execution and a willingness to drive changes required to improve businesses irrespective of any potential headline risks.
We conduct thorough assessments of target company’s operations, including management, product strategies and capital structure. Our business and financial expertise allows detailed engagement, focusing on strategies to unlock hidden value and eliminate barriers to price discovery by addressing business challenges related to strategy, operations, capital structure and capital expenditure plans.
Our team’s transactional experience provides insights on the long-term viability and implementation of potential value-creating initiatives.
Value Creation
Strategic Repositioning
- Evaluate and restructure capital expenditures
Operational Improvements
- Asset utilization
- Revenue enhancement (pricing, new products, new markets)
Governance Changes
- Strengthen management, if needed
- Improve reporting and committee structures
Financial Restructuring
- Share buyback programs
- Dividends
- Debt restructurings
Activist Target Financial Results
(Annualized Average Return)
Source: Linklaters (2013)
Appropriate Engagement
Can Achieve Superior Performance
Our constructively firm process is shaped by the fact that a collaborative, negotiated, or settled response to activist engagements tends to lead to higher excess value than a combative one.
| WSD Capital Management | Private Equity | |
|---|---|---|
| Objective | Enhancing Value | Capturing Value |
| Preferred Investment Period | 14 to 48 Months | 4+ Years |
| Control Ambition | Aims for influence in cooperation with multiple stakeholders | Total Control |
| Willingness to Partner with Others | Yes, seeks often third-party support and consensus | Rarely |
| Tolerance for Negative Publicity | High | Low |
| Predictability of Strategy | Low, can be creative and nimble | High, due to influence of many constituencies |
Governance Improvements
Benefit Not Only Shareholders But Also Workers, Communities and Many Others
As global markets become more investor friendly, companies can take advantage of the market benefits of instituting improved corporate governance which drives lower costs of capital, higher margins, increased productivity and, in turn, higher multiples.
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What We Do
Activism
