Shareholders may rue lowball bids from PE sponsors, says Activist Insight

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Returning cash to shareholders or changing managers is likely to look less appealing in the current climate, while underwater shareholders may regret lowball bids from strategic acquirers or private equity sponsors, according to a new report by Activist Insight.

The report, titled Covid-19: The impact on shareholder activism, explores some of the changes that have occurred in the last two months and potential future impact of the coronavirus pandemic on activist investing.

One of its findings is that preserving value, more than creating it, will likely be the priority for this year. “I think there’s going to be far less activism than we’ve experienced in past years. I can’t imagine an activist aggressively prosecuting a proxy contest,” Bob Marese, MacKenzie Partners’ president, commented.

“There are the practical elements of logistics to consider in a time of social distancing, but perhaps more importantly the optics of it. How will the investor base view the activity in light of the broader macro conditions?” he added.

In the future we will probably see a lot more areas where activism and private equity could overlap; private equity could operate more through PIPEs (private investment in public equity) or minority stakes, which could protect companies from activists, according to Josh Black, editor-in-chief of Activism Insight.

KKR and TPG have both been moving in the direction of launching their own quasi-activist funds before the COVID19 related crisis hit. KKR's acquisition of a 10.7 per cent stake in Nasdaq listed US restaurant chain Dave & Busters, a Dallas-based restaurant chain known for offering customers arcade games, billiards and bowling, is a sign of this development.

The PE firm disclosed its more active public equity strategy regarding the company in an SEC filing in January this year, in what could be said to be the PE giant’s first 13D filing through this strategy lately.

"We haven't yet seen activists use the pandemic as an opportunity to take companies private but this was a trend that was getting going over the last two to three years," explains Black.