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Alternative Market Briefing

Other Voices: Private equity and activism

Thursday, April 11, 2019

By Amadeus Moeser, Sidley Austin LLP

The relationship between private equity funds and activist hedge funds has always been double-edged. While in the past, engagements of activists often led to the sale of a target company or less profitable operations of a company to private equity funds, many go-private transactions have been opposed by activists trying to improve the terms of the deal and companies brought private equity funds in as "white knights" during a hostile takeover.

However, tensions seem to be slowly disappearing as the transitions between activist hedge funds and private equity funds become blurred. Private equity funds are beginning to adopt activist tactics and activists are increasingly engaging in private equity transactions.

Private equity firm Waterton Global Resource Management started to use activist strategies in 2018 and pushed for a new slate of directors at Hudbay Minerals after accusing the board of mismanagement. Other private equity firms like KKR, Golden Gate Capital and Sycamore Partners had already applied activists tactics, for instance, by acquiring so called "toehold" stakes in public companies (typically under the 5% public reporting threshold) as a way to approach management and begin a dialogue regarding a buyout. On the other hand, activists started to take private equity opportunities themselves by buying entire companies, alone or with a partner. In 2016, Icahn Enterprises bought auto service and part chain Pep Boys f......................

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