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On Wall Street, you never want the next person to profit off your genius.
Jana Partners, the prominent US activist fund with around $2bn in assets, announced on Wednesday that it would work alongside Cannae Holdings, a financial sponsor holding company. It will combine the work of public company investor activism with any subsequent control buyouts.
Activist hedge funds often buy modest stakes in listed companies then strong-arm their targets into selling themselves at a premium. Buyers then make the sorts of operational changes the activist wanted and relist the business, earning several multiples on their initial investment. Now the two are joining forces.
As a part of the deal, Jana will get around 2.5 per cent of the shares in the listed Cannae. That stake is worth around $40mn after Cannae shares rallied a tenth on Thursday.
Good investing ideas do not arrive very often. It is not surprising that when a fund comes up with one, it wishes to ensure that none of the value creation leaks to anyone else.
The Jana/Cannae partnership is not completely novel. Elliott Management, the most fearsome activist in the world, launched a private equity buyout vehicle called Evergreen Coast, though it has since retired that name.
Cannae is the vehicle of Bill Foley, the multi-billionaire who made his fortune in a series of financial technology and financial services companies. Cannae owns stakes of varying sizes in mostly public companies, notably Dun & Bradstreet. One company, software maker Alight, is facing an activist campaign from Jana rival, Starboard Value.
Cannae pays a 1.5 per cent annual management fee, roughly $40mn, to another Foley affiliate. Public market investing and control take-privates require different skills, even if their respective operators can identify underperforming assets.
Private equity firms must get into the weeds of a business. Hedge funds prefer spreadsheet calculations that they can paste into letters and PowerPoint slides. The hard work is convincing other, larger money managers to go along with their ideas.
Elliott’s foray into buyouts had its share of misfires, among some notable wins. But the Jana/Cannae partnership lets each side stick to their own area.
As for potential targets, they may not have to look too far. Cannae’s own net asset value per share of $2.4bn, or $34 per share, is well above its trading price of $22 per share. Jana could very well push Cannae to take itself private and capture the value of that discount.
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