Impactive Capital takes an unprecedented step at Envestnet

Enterprise: Envestnet gives wealth administration providers and software program to the funding group. It has a wonderful product with 90% retention and secular tailwinds. Envestnet was based in 1999 by Jud Bergman and Invoice Crager. Bergman was chairman and CEO of the corporate from 1999 via October 2019 when he was tragically killed in a automobile accident. Invoice Crager took over as interim CEO and in March 2020 grew to become everlasting CEO.

Inventory Market Worth: $3.1B ($56.14 per share)

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Proportion Possession: 7.20%

Common Price: $72.65

Activist Commentary: Impactive Capital is an activist hedge fund based in 2018 by Lauren Taylor Wolfe and Christian Alejandro Asmar. Impactive Capital is an energetic ESG (AESG™) investor that launched with a $250 million funding from CalSTRS and now has over $2 billion. In simply three years, they’ve made fairly a reputation for themselves as AESG™ traders. Wolfe and Asmar realized that there was a possibility to make use of instruments, notably on the social and environmental facet, to drive returns. Impactive focuses on constructive systemic change to assist construct extra aggressive, sustainable companies for the long term. Impactive will use all the conventional operational, monetary and strategic instruments that activists use, however can even implement ESG change that they imagine is materials to the enterprise and drives profitability of the corporate and shareholder worth.

On Nov. 15, Impactive despatched a letter to Envestnet expressing their disappointment within the firm’s efficiency. Moreover, Impactive famous that they may contemplate nominating a slate of administrators for the corporate’s subsequent annual assembly if Lauren Taylor Wolfe, Impactive’s co-founder and managing companion, is just not instantly appointed to the board.

In lots of activist campaigns, it’s troublesome to find out who’s sporting the black hat and who’s sporting the white hat. Typically the burden is on the activist to show they’re sporting the white hat. On this state of affairs it is vitally clear that Impactive is sporting the white hat and shareholders needs to be placing the burden on the incumbent board to show in any other case.

Impactive:

• Owns 7.2% of frequent inventory
• Has been a shareholder for 18 months
• Engaged privately with the corporate a few board seat 5 months in the past earlier than going public
• Requested for just one seat on the seven-person board
• Written its first public letter in its historical past — an extended, detailed considerate letter
• Has a powerful status as an amicable, revered and value-creating activist

Envestnet’s board:

• Owns lower than 1% of frequent inventory
• Underperformed the S&P 500 by 124% throughout the chairman’s seven-year tenure on the board
• Underperformed proxy friends by 243.5% throughout the identical time-frame
• Has not added a brand new board member in seven years (as of the 2023 annual assembly) — aside from the brand new CEO
• Is a staggered board at a time when most corporations are gravitating to good company governance
• Paid the seven-director board $19 million over the previous 5 years, throughout which era they underperformed the S&P500 by 65.5% and their proxy friends by 113.5%

Now, Impactive is ready they don’t wish to be in and certain didn’t anticipate to be in – participating in a proxy combat for board seats. They’re justifiably going for a full slate of three administrators on the staggered board. Two of the incumbent administrators who shall be focused are a 22-year tenured director and the chairman of the corporate. Impactive desires board illustration to get Envestnet to raised align pay for efficiency, refocus on capital allocation and bolster long-term shareholder worth.

This is among the worst activist protection campaigns I’ve ever seen. Anybody with any understanding of Impactive, Envestnet’s efficiency and the incumbent board would know that Impactive is certain to get at the very least one board seat in a proxy combat. And that’s one in every of seven — it may very well be the chairman who’s voted off the board. Impactive supplied one in every of eight with no incumbent dropping a board seat. Furthermore, Impactive is prone to get two board seats at an organization like this, possibly even three.

My guess is that Envestnet’s advisors suggested the board that Impactive has by no means commenced a proxy combat earlier than and isn’t seemingly to do this right here. Effectively, they may not have been extra mistaken. I additionally anticipate that as the corporate hears from its massive shareholders, they may see the writing on the wall and are available again to Impactive with a suggestion for board illustration and this may finally settle. Taking this all the best way to a vote could be an amazing waste of shareholder cash and administration time to get to an consequence that’s considerably predestined below these information and circumstances. The longer the corporate prolongs this combat, the extra the shareholders are going to facet with Impactive.  

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and he’s the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire can be the creator of the AESG™ funding class, an activist funding model targeted on enhancing ESG practices of portfolio corporations.