BOSTON – For 17 years Jeffrey Smith, the co-founder of activist investment firm Starboard Value LP, has been telling public companies he and his team can help improve their operations. Now he is saying the same thing to private companies.
Starboard this week said it had raised $360 million through a blank-check acquisition vehicle called SVAC and plans to buy a solid but underperforming private business in the technology, healthcare, consumer, industrials, hospitality or entertainment sector to then merge it into a publicly traded company.
There are already nearly 100 so-called SPACs, including activist investor William Ackman’s Tontine Holdings and former Goldman Sachs executive Gary Cohn and former hedge fund manager Cliff Robbins’ CohnRobbins Holdings, searching for deals.
What makes Starboard stand out, Smith said in an interview, is the firm’s long history of improving public companies like Darden Restaurants with a team of experts.
“If a family places their company, their baby essentially, with us, we will take their business to a better place,” he said, adding that he and the advisers and directors he recruited to SVAC can identify and repair weaknesses and be a bridge to the public markets that would not have existed before.
Starboard, which won 17 board seats in the first half of 2020, more than all other activists, has been known to frighten “insecure” corporate chiefs with its phone calls, Smith acknowledged.
But now, he said, chiefs of private companies are flattered when he calls. “They know I can’t do anything without their permission and they want to hear what I have to say.”
After the initial approach, Smith says the work that needs doing at a private or public company is often similar and that Starboard’s approach would be the same; following a time-tested playbook that lifted returns at Darden Restaurants PZZA.O and Papa John’s Pizza PZZA.O.
At a time many companies have seen their business upended by the COVID-19 crisis, Smith said it was more critical than ever to have top performing executives. But some boards are using the pandemic as a shield to stick with the status quo, he said, warning “boards cannot accept mediocrity now because the difference between the great and mediocre will be magnified.”
After selling nearly three quarters of its holdings in eBay EBAY.O and exiting Resideo Technologies REZI.N , Starboard, which invests roughly $6 billion in assets, has dry powder for new campaigns.
“We are finding great opportunities, and this is a good environment to keep doing what we are doing,” Smith said.