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Company: Clarivate (CLVT)
Business: Clarify is a global information, analytics and workflow solutions company. It operates through three segments: (i) University and Government, which accounts for approximately 49% of revenue and includes information and software services used to conduct, evaluate and disseminate research; (ii) intellectual property, which accounts for approximately 33% of revenue and includes services used by large corporations and law firms to establish, protect and manage their intellectual property portfolios; and (iii) life sciences and healthcare, which accounts for approximately 18% of revenue and is comprised of information platforms used by pharmaceutical and biotechnology companies to obtain Food and Drug approval. United States Administration for new drugs and bringing them to market.
Market value: $5.16 billion ($7.65 per share)
Activist: Impactive Capital
investment related news
Percentage of ownership: n / A
Average cost: n / A
Activist Comment: Impactive Capital is an activist hedge fund founded in 2018 by Lauren Taylor Wolfe and Christian Alejandro Asmar. Impactive Capital is an active ESG investor (AESG) that launched with a $250 million investment from CalSTRS and now has over $2.5 billion. In just four years, they have made a name for themselves as AESG investors. Wolfe and Asmar realized that it was possible to use tools, especially social and environmental ones, to generate returns. Impactive focuses on positive systemic change to help create more competitive and long-term sustainable businesses. Impactive will use all the traditional operational, financial and strategic tools that activists use, but will also implement ESG change that it deems important to the business and that drives business profitability and shareholder value. Impactive seeks high quality businesses that are typically complex and poorly priced where it can underwrite a minimum of a high teenage rate or a low 20% internal rate of return over a three-year holding period at five years old. The company aims to have active engagement with management to implement multiple ways to earn.
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.