Strategic Block Investing
Encyclopedia
Strategic block investing is a hybrid investment
strategy generally used by fund managers who aim to play a constructive, active role in unlocking value from public companies through the implementation of financial, operational and governance initiatives from both minority and control positions. Strategic block investors tend to focus on publicly quoted companies but may also pursue more traditional private equity strategies.
The style and level of engagement by strategic block investors varies. The majority position themselves as “company-friendly” and operate with a high level of engagement. A strategic block fund manager identifies undervalued companies, purchases a substantial block of shares in these companies (of either existing or newly issued equity) and then uses this holding to focus the attention of the incumbent management on increasing shareholder value. Some strategic block funds will intend on gaining board representation and most will work proactively with management, the board and shareholders on major issues of strategy, capital structure, management and performance. Some strategic block investors are prepared to take aggressive action if their proposals for improving shareholder value
are not actioned. Strategic block investors will typically focus their investments in relatively few companies.
Most strategic block investors employ some of the skills traditionally used by private equity
investors, however unlike private equity investors, they specialise in dealing with listed companies, often from a position of minority or sometimes majority ownership. In order to gain a sufficient minority position in an investee of >5%, some strategic block funds will monitor shifts in shareholder ownership to take advantage of out-of-favour or neglected situations that can often offer highly compelling entry valuations, whilst others will prefer the placement of new equity.
According to a study by The Journal of Finance, activist block share purchases with the announced intention of influencing firm policies are followed by increases in profitability and abnormal stock appreciation. Moreover, share prices tend to rise irrespective of whether divestitures followed.
established Blum Capital
Partners http://www.blumcapital.com in San Francisco, which pioneered company-friendly strategic block investing in 1975.
Other US-based firms include Sageview Capital LP http://www.sageviewcapital.com in Palo Alto, Blue Harbour Group LP http://www.blueharbourgroup.com in Greenwich, Connecticut, Prides Capital http://www.pridescapital.com in Boston, Hale Capital Partners http://www.halecapitalpartners.com in New York, and Accretive Capital Partners http://www.accretivecapital.com in Madison, Connecticut.
In the UK and Europe, four firms are known to manage dedicated strategic block investment funds, namely Cevian Capital http://www.www.ceviancapital.com based in Stockholm, 3i
http://www.3i.com/approach/quoted-private-equity.html based in London, SVG Capital
http://www.svgcapital.com based in London and CapMan Public Market http://www.capman.com based in Helsinki.
The only known specialist in the Asia-Pacific region is Co-Investor Capital Partners http://www.co-investor.net. Formed in 2004, Co-Investor has offices in Sydney and Singapore. HighPoint Capital http://www.highpointcapital.com.au (formerly Hyperion Capital) is also based in Sydney and undertakes strategic block investing alongside its traditional private equity investing.
Media commentary has highlighted the differences between company-friendly strategic block investors and shareholder activists who are prepared to take aggressive action to achieve their targeted investment returns.
On 24 March 2006 the Boston Business Journal referred to the company-friendly exponents as the “anti-raiders”.
On 4 June 2006 the Financial Times stated “…there is a fundamental difference between their tactics and those of Blue Harbour and Sageview, who exert a level of pressure on managements, but without engaging in proxy fights. Instead, they look at companies through what they describe as a ‘private equity lens’ identifying targets that are undervalued and could do with some form of transformation, whether in the form of balance sheet restructuring, the disposal of certain assets or the sale of the entire company.”
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
strategy generally used by fund managers who aim to play a constructive, active role in unlocking value from public companies through the implementation of financial, operational and governance initiatives from both minority and control positions. Strategic block investors tend to focus on publicly quoted companies but may also pursue more traditional private equity strategies.
The style and level of engagement by strategic block investors varies. The majority position themselves as “company-friendly” and operate with a high level of engagement. A strategic block fund manager identifies undervalued companies, purchases a substantial block of shares in these companies (of either existing or newly issued equity) and then uses this holding to focus the attention of the incumbent management on increasing shareholder value. Some strategic block funds will intend on gaining board representation and most will work proactively with management, the board and shareholders on major issues of strategy, capital structure, management and performance. Some strategic block investors are prepared to take aggressive action if their proposals for improving shareholder value
Shareholder value
Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders...
are not actioned. Strategic block investors will typically focus their investments in relatively few companies.
Most strategic block investors employ some of the skills traditionally used by private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
investors, however unlike private equity investors, they specialise in dealing with listed companies, often from a position of minority or sometimes majority ownership. In order to gain a sufficient minority position in an investee of >5%, some strategic block funds will monitor shifts in shareholder ownership to take advantage of out-of-favour or neglected situations that can often offer highly compelling entry valuations, whilst others will prefer the placement of new equity.
According to a study by The Journal of Finance, activist block share purchases with the announced intention of influencing firm policies are followed by increases in profitability and abnormal stock appreciation. Moreover, share prices tend to rise irrespective of whether divestitures followed.
The Industry
Richard C. BlumRichard C. Blum
Richard C. Blum is an investment banker and the husband of United States Senator from California Dianne Feinstein. He is the Chairman and President of Blum Capital, an equity investment management firm that acts as general partner for various investment partnerships and provides investment...
established Blum Capital
Blum Capital
Blum Capital is a private equity firm focused on leveraged buyout, growth capital and PIPE investments in small cap and middle-market companies across a range of industries. The firm is known for pioneering a hybrid private equity / strategic block investment strategy in public companies.The firm,...
Partners http://www.blumcapital.com in San Francisco, which pioneered company-friendly strategic block investing in 1975.
Other US-based firms include Sageview Capital LP http://www.sageviewcapital.com in Palo Alto, Blue Harbour Group LP http://www.blueharbourgroup.com in Greenwich, Connecticut, Prides Capital http://www.pridescapital.com in Boston, Hale Capital Partners http://www.halecapitalpartners.com in New York, and Accretive Capital Partners http://www.accretivecapital.com in Madison, Connecticut.
In the UK and Europe, four firms are known to manage dedicated strategic block investment funds, namely Cevian Capital http://www.www.ceviancapital.com based in Stockholm, 3i
3i
3i Group plc is a multinational private equity and venture capital company headquartered in London, United Kingdom. It has offices in 13 countries across Asia, Europe and the Americas and had total assets under management of £12.7 billion as at 31 March 2011...
http://www.3i.com/approach/quoted-private-equity.html based in London, SVG Capital
SVG Capital
SVG Capital is a leading British private equity and investment management business. It is headquartered in London and is a constituent of the FTSE 250 Index.-History:...
http://www.svgcapital.com based in London and CapMan Public Market http://www.capman.com based in Helsinki.
The only known specialist in the Asia-Pacific region is Co-Investor Capital Partners http://www.co-investor.net. Formed in 2004, Co-Investor has offices in Sydney and Singapore. HighPoint Capital http://www.highpointcapital.com.au (formerly Hyperion Capital) is also based in Sydney and undertakes strategic block investing alongside its traditional private equity investing.
Media commentary has highlighted the differences between company-friendly strategic block investors and shareholder activists who are prepared to take aggressive action to achieve their targeted investment returns.
On 24 March 2006 the Boston Business Journal referred to the company-friendly exponents as the “anti-raiders”.
On 4 June 2006 the Financial Times stated “…there is a fundamental difference between their tactics and those of Blue Harbour and Sageview, who exert a level of pressure on managements, but without engaging in proxy fights. Instead, they look at companies through what they describe as a ‘private equity lens’ identifying targets that are undervalued and could do with some form of transformation, whether in the form of balance sheet restructuring, the disposal of certain assets or the sale of the entire company.”