Wall Street’s Most Feared Activist Investor Is Changing His Game After Shaking Up Twitter, AT&T And Samsung
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Billionaire Paul Singer made his name pressuring public companies – but recent windfalls in private equity have prompted him to shift tactics.
In the spring of 2017, Elliott Management believed it had crafted the perfect plan to save Athenahealth, a provider of patient records software that had lost nearly half its value over the previous few years. After building up a roughly 9% stake, the activist hedge fund pitched its proposal to Athena’s executives.
There was only one problem: The executives disagreed.
Led by cofounder and longtime CEO Jonathan Bush, a cousin of George W. Bush, Athena tried to win over Elliott with its own methods, laying off workers and slashing costs. But Elliott had other changes in mind—like replacing Bush himself. The firm saw a good company that had been led astray by ineffective leadership. That leadership, of course, had a different view.
The situation simmered for more than a year. Eventually, Elliott’s thinking shifted. If Athena didn’t want to implement the firm’s plans, then Elliott would try to implement those plans itself.
Elliott submitted a formal takeover offer in May 2018. A month later, Bush stepped down from Athena after Bloomberg published a story detailing past domestic violence allegations and newer accusations of workplace misconduct. Athena’s stock continued to flounder, and its shareholders opted to side with Elliott. A deal was reached by November, when Elliott teamed up with private equity firm Veritas Capital to buy Athena for $5.7 billion.
Elliott’s Acquisitions
Elliott has snapped up plenty of other notable companies in addition to Athenahealth and Citrix Systems.
Once, it would have been a rare instance of Elliott taking a majority stake in a company rather than maintaining a smaller activist position. But the firm is pushing aggressively into the world of buyouts. And Athena is its biggest success yet. Last week, after just three years of ownership, Elliott and Veritas closed the sale of Athena for $17 billion. Elliott’s profit is estimated to be about $5 billion—a lucrative exit that serves as a testament to the benefits of private equity and Elliott’s turnaround chops.
Elliott’s activist investing has always relied on mountains of research and detailed plans for corporate transformations. As a minority shareholder, though, the financial upside is limited if those detailed plans work out. So, Elliott has spent the past several years building out its buyout team to grab a bigger piece of the pie.
“I think we’re finally showing results that speak for themselves,” said David Kerko, the firm’s head of North American private equity.
Elliott was founded by Paul Singer in 1977, making it one of the world’s oldest hedge funds. At first, Singer focused on convertible bond arbitrage, then distressed investing. In the 2000s, he turned his efforts to activism. By then, Elliott had become a Wall Street giant. And it had earned a reputation as a firm not to be trifled with, one that is unafraid to chastise corporate executives and issue public calls for a sale process, a new CEO or other major strategic shifts. The firm’s most famous fight was with the government of Argentina, a 15-year legal campaign waged over lapsed debt payments that included the seizure of an Argentinian ship and, eventually, a $2.4 billion payout for Elliott, while other bondholders settled for pennies on the dollar. Last year, Bloomberg described Elliott as “Wall Street’s most feared fund.”
Elliott’s activist activities continue: Its targets in recent years have included Twitter, AT&T and Samsung. But its next major evolution began in 2015, when the firm formed Evergreen Coast Capital as a PE-focused affiliate. Since then, Elliott has made around 40 acquisitions, a major uptick in activity, striking deals for the likes of LogMeIn, Gigamon, Cubic and Barnes & Noble.
“In certain situations, pursuing a private transaction at the end of an activist process is the best value-creation possibility,” Singer wrote in a 2016 letter to investors detailing the strategic shift that was obtained by Forbes. In previous years, Elliott’s structure had made it challenging to do such deals. “Thanks to the additions we have made to our team,” Singer continued, “this is no longer the case.”
Elliott’s exit from Athena isn’t its only recent headline-grabber. The firm announced its biggest purchase yet on the last day of January, teaming with Vista Equity Partners to acquire Citrix Systems in a take-private buyout worth $16.5 billion. Citrix will merge with Tibco Software, an existing Vista portfolio company, to create a new cloud software giant with some 400,000 customers.
Elliott’s specific combination of public and private investing through a single fund is unique. But it’s also part of a larger trend among many of the world’s biggest investment firms.
Everyone is searching for a new edge, a new angle—a new way to use their expertise to generate huge returns.
Longtime private equity giants like Blackstone, KKR and Apollo Global Management have generated explosive growth in recent years by diversifying away from buyouts. At the same time, hedge funds have plowed billions into the business of buying and selling stakes in private companies. Firms like Tiger Global and Coatue have turned into forces in the world of startup investing. Point72 Asset Management and D.E. Shaw both recently raised debut private equity funds.
The lines are blurring. As the private markets have grown more popular among LPs, they have also grown more crowded and competitive. Everyone is searching for a new edge, a new angle—a new way to use their expertise to generate huge returns.
The Athena and Citrix deals demonstrate some of the key ingredients in Elliott’s private equity cocktail.
Both trace their roots to the public market. Elliott first invested in Citrix in 2015 and held a stake for five years before it ever attempted a buyout, and the firm owned a slice of Athena for nearly two years before closing its takeover in 2019. That yearslong relationship allows Elliott to learn more about potential targets than would be possible in normal diligence.
It also allows the firm to identify off-the-radar targets. Neither Citrix nor Athena had engaged any formal sale process when Elliott first made its approach.
In both cases, Elliott partnered with another private equity firm. Clubbing up makes it easier to gather the substantial capital required for these sorts of mega-deals, and it allows for collaboration between investors with complementary strengths.
Perhaps the defining element of Elliott’s approach is that capital for all its investments—private markets, public markets and whatever else—comes from a single fund, and all deals are assessed by the same group of investors. That stands in contrast to the biggest private equity factories, where dozens of discrete funds are managed by different teams pursuing specialized strategies. The structure gives Elliott’s team more flexibility and freedom when deciding how to invest.
“There’s elements of public-market investing and there’s elements of private-equity investing,” said Jesse Cohn, a managing partner at Elliott who’s one of the architects of its push into PE. “We are (taking) companies private, we are buying public stakes, we are doing activism. And in many cases, we’re doing all of those at the same time or at the same target.”
Some of the investors behind the initiative are Elliott lifers: Cohn has worked at the firm since 2004. Others are newer additions, including Kerko, who joined Elliott in 2020 after spending nearly two decades at KKR.
That mix has created a fusion of Elliott’s insider knowledge and outside industry expertise. Kerko acknowledges that it’s more difficult than ever to stand out from the pack in today’s crowded private equity landscape. But difficult isn’t impossible.
“What we’re doing from a public and private strategy standpoint, I’m not aware of anybody else that’s doing it,” Kerko said. “And I think if you say, well, why is that? It’s really, really hard to do.”
