Until fairly recently, activist hedge fund Elliott Management’s core technology investing strategy was pretty straightforward: Target a smallish company known for selling software to businesses, agitate for a sale — sometimes by offering to buy the company — and profit when a buyer came along. Some of the targets were well-known within particular tech sector niches, like BMC, Novell and Informatica, but none were giants or household names.
Elliott, founded by billionaire Paul Singer, notched sale after sale, reaping gains from the associated premiums on the acquisitions.
Its track record gave Singer a reputation among CEOs and board members as the world’s most feared investor. Former AthenaHealth CEO Jonathan Bush, whose company was targeted by Elliott in 2017, described doing research on Elliott as ’googling this thing on your arm and it says, ‘You’re going to die.’” The New Yorker called Singer a “doomsday investor,” highlighting a series of unflattering tactics taken by one of Singer’s top lieutenants, Jesse Cohn, to oust Bush from his role.
But in the past few years, a gradual but noticeable transformation has taken place at Elliott: The technology targets have gotten bigger.
In 2019, Elliott bought stakes in eBay ($34 billion market capitalization), SAP ($159 billion) and AT&T ($217 billion market cap). This year, Elliott has already targeted Twitter ($26 billion market cap) and SoftBank ($93 billion).
The change was driven at least in part by Elliott’s growth. The fund’s assets under management this year are about $42 billion — doubling from 2012, including a $5 billion raise in 24 hours in 2017. The smaller transactions no longer move the needle like they once did.
Finding suitable software targets has also become more difficult as multiples have expanded, companies have consolidated, and management has become more sophisticated. Elliott continues to look at some midsize enterprise software companies, including Instructure, which sold to private equity firm Thoma Bravo in a deal that closed last month for about $2 billion, according to people familiar with the matter. But the firm hasn’t acted, believing targets to be fully valued.
The bigger targets have required the firm to adjust its tactics. Elliott has had to be more collaborative, working with companies that have no obvious buyers given their size.
Cohn, who has led most of Elliott’s technology transactions, now sits on the boards of both eBay and Twitter. Rather than agitating for public change, he has worked in tandem with management at both companies — a tactic used by activist fund ValueAct, which earned a reputation as being “friendly” after taking a stake at Microsoft in 2013, months before CEO Steve Ballmer stepped down. (ValueAct and Microsoft both denied that the firm played a part in ousting Ballmer, but the firm’s investment is credited with drawing new attention to the company’s stagnant stock price and strategic missteps under Ballmer’s tenure.)
As Elliott’s strategy shifted, it also got more sophisticated. When Elliott was investing in midsize enterprise software companies, the firm was “a bunch of technology investors,” according to people familiar with how the firm was run. Today, when examining companies like eBay or Twitter, the firm calls upon its own Internet analysts, software analysts, operation analysts, consultants and stable of installed board members to help make decisions.