Shareholder activism is nothing new. But when an investor with Coller Capital’s clout starts contesting board proposals, people tend to take notice.
The spat that unfolded last month between SVG Capital and Coller Capital – which has owned a 20 percent stake in SVG since 2009 – concerned proposed changes to SVG’s strategy.
SVG’s board wanted to do two things: broaden its investment strategy to include commitments to funds managed by teams other than Permira; and return up to £170 million to shareholders through tender offers and buybacks.
At an EGM held in London, both proposals were carried. But while the latter was passed almost unanimously, the former attracted substantial opposition: a third of investors voted against it, with Coller leading the dissent.
Coller has previously argued that SVG should wind itself down and return all its capital to shareholders – who would then be able to fully exit their investments, as per an agreement apparently made in 2009. Not surprisingly, SVG’s board wasn’t keen on that idea, and not just on the ‘turkeys not voting for Christmas’ principle. Chief executive Lynn Fordham told the UK Daily Telegraph that any such plan involved “huge execution risk” and wasn’t in the interests of all investors.
But while their challenge may have been unsuccessful, the activists nonetheless forced the board to think hard about its new strategy. David Hersh, a partner at Mantra Investissement – which adopted a similarly activist approach last year in calling for a realisation strategy at Private Equity Holding – told Private Equity International: “Discussions are now happening about how to address investors’ needs and concerns. Two years ago, boards would probably just have ignored the issue.”
As if to illustrate the point, SVG chairman Nicholas Ferguson – who has just announced that he will be standing down from his position at the end of the year – said after the successful vote: “Like any business, SVG Capital has a diverse shareholder base who have differing views and investment mandates. The board believes the reinvestment strategy balances the needs of all stakeholders and gives it the flexibility to control capital through a disciplined asset allocation framework focused on shareholder total return and NAV growth.”
Coller – which has refused to comment publicly on the row – probably won’t be too despondent. It can still exit its investment if it wants to, albeit in a more protracted manner through multiple sell-downs. And its £50 million investment still looks like a bargain: Coller paid 100p per share in 2009, and SVG’s shares were changing hands for 288p on March 20, the day of the shareholder vote.
Permira may be less happy. The buyout firm – which also declined to comment – will have to reframe its relationship with SVG, which has previously been a cornerstone investor in all its funds. Now its commitments are to be reduced substantially, Permira’s investor relations team will have to get busy finding new ways to make up the shortfall.
But if it’s bad news for Permira, it should be good news for other managers. Suddenly there’s a sizeable new LP on the block – and in the current fundraising climate, they are worth their weight in gold.
As for SVG, the key will obviously be to invest the money wisely (and this won’t be easy, since fund selection has only ever been a small part of its business) in firms that offer something different to Permira. For now, though, it will be grateful for this new lease of life.