Impactive takes a stake in Clarivate and sets the tone for activism in the post-SPAC world


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Company: Clarivate (CLVT)

Activist: Impactive Capital

What is happening?

On April 27, Impactive announced that it had taken a stake in Clarivate.

In the wings

Clarivate went public via a ad hoc acquisition company in 2019 and tripled the size of its business in three years through three transformative acquisitions. Their latest acquisitions were Patient Connect (December 2021), Bioinfogate (August 2021), and ProQuest (announced in May 2021). These acquisitions added high-quality, recurring revenue businesses that were adjacent to legacy IP lifecycle assets. However, they also added significant complexity, leverage and execution challenges that caused the stock to fall around 70% from its peak and led Clarivate to trade at a significant discount to its high. its peers and its own historical multiples. Clarivate currently trades at 11x enterprise value/earnings before interest, tax, depreciation and amortization against an average of 18x EBITDA and an average historical multiple of 21x EBITDA (as of April 4).

Clarivate has high-quality recurring revenue that is essential for its clients’ day-to-day workflows and has a 30%-50% market share in its niches. It also benefits from resilient demand during economic downturns. The company’s products are essential inputs that facilitate drug discovery, support the development of key treatments – including the Covid vaccine – and help bring life-saving treatments to market in low-income countries. As with many SPAC companies, there were valuation, corporate governance and compensation incentive issues at Clarivate. However, with the inevitable SPAC market correction, the stock fell 75% from its highs, taking it from overvalued to reasonably or undervalued. Additionally, the CEO and several board members have been replaced by a management team that would be willing to work alongside an active shareholder like Impactive to create value for all shareholders.

It’s a great example of something we predicted years ago coming to fruition: SPAC mania leads to a plethora of opportunities for activists. In their heyday, SPACs soared regardless of their intrinsic value, even when companies were run by founders who might not be the best candidates for a public company CEO. Today many of these SPACs have come down to earth on valuation and are good companies at the right price, but they need a culture change to be run by a CEO who has the parts stakeholders in mind. Clarivate appears to be on the right track and will only get there faster with the help of Impective, which we expect to be an engaged shareholder here, as in all of its portfolio companies.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments.

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