The next time Jesse Cohn makes a buyout offer for a technology company, it won’t be dismissed as a bluff.
Cohn, who runs U.S. activist investments at hedge fund Elliott Management, is infamous throughout technology board rooms for offering to acquire a company to force an auction -- a tactic that has proved lucrative. Now, he’s starting an Elliott Management private-equity strategy that will give those offers an added heft, people with knowledge of the matter said.
Elliott Management, which oversees more than $25 billion in assets, is actively recruiting staff from other Silicon Valley firms for a multi-billion-dollar buyout effort that will be part of its existing funds, said two of the people, who asked not to be identified discussing private information. The private-equity tech team will be based in a new San Francisco office, with Cohn splitting more of his time between California and Elliott Management’s New York headquarters and continuing to run the activist strategy, one of the people said.
“Reports of a new multi-billion-dollar private-equity effort are incorrect. Elliott has been doing private equity for years. We are exploring the idea of augmenting our existing activity, but no firm commitments or decisions have been made at this time,” Elliott Management said in an e-mailed statement.
While Elliott Management is best known for a battle with Argentina’s government over that nation’s 2001 bond default, Cohn’s activist focus has been on lower-profile software and hardware companies. His targets have included companies like Riverbed Technology Inc., Juniper Networks Inc. and Informatica Corp., which provide essential -- but invisible -- cogs in data networks.
Activist targets often try to blow off Cohn’s advances. Riverbed in March 2014 said it had no “credible” offers, after Elliott bid to acquire it for $21 a share in a campaign that helpfully included a 78-page draft merger agreement that any buyer could adopt. Riverbed later agreed to a $3.6 billion sale to Thoma Bravo and Teachers’ Private Capital.
Activists tend to buy minority stakes in public companies and agitate for changes, while private-equity investors buy entire companies and sell them years later after working to boost profitability. Both strategies have their critics, as some activists are short-term shareholders, while leveraged buyouts burden companies with added debt.
A buyout strategy offers Elliott Management a way to profit both from the activist campaign to sell a company, as well as potentially participate in the deal’s longer-term returns. The investor has already embraced such private-equity plays, rolling its company stakes into a number of deals over the past decade. It partnered with Insight Venture Partners on the $273 million buyout of E2open Inc., completed last month, and in 2006 worked with Francisco Partners Management to buy out Metrologic Instruments Inc.
Elliott private equity is likely to partner with other buyout funds that Cohn has worked with as an activist, said one of the people.
Having a dedicated private-equity team will expand on Elliott Management’s existing strategies, which include long-short hedge funds, distressed credit, arbitrage, and real estate investing. Started by billionaire Paul Singer in 1977, its flagship fund has returned about 14 percent annually.
Cohn, 34, typically acquires about 10 percent of a target and then agitates boards and management teams to make shareholder-friendly changes and explore sales. Bluff or not, the tactic often leads to real deals: In 2010, Elliott Management’s bid for software maker Novell Inc. led to its sale eight-months later to Attachmate Corp. Riverbed agreed to its buyout in December.
Cohn also recently agitated for software provider Informatica to sell itself, which it did in the biggest leveraged buyout of the year, and has successfully pushed for sales by BMC Software Inc., Compuware Corp. and Blue Coat Systems Inc., among others.