What Private Equity Can Learn From Shareholder Activism – And Vice Versa?

Introduction: Blurring Lines

Among the most fascinating developments in corporate practice over the past decade has been the incremental and reciprocal convergence of private equity and shareholder activism. The phenomenon has been discussed in various quarters, including the Harvard Law School Forum on Corporate Governance,¹ and demands the attention of both clients and counsel.

What exactly has been occurring? Amid ever-tightening competition for value generation opportunities, as well as ample amounts of capital to deploy, each has begun learning from and adopting the strategies and tactics of the other.

Private equity in its most classic form is the leveraged buyout (LBO). The fund acquires its target outright to add industry expertise and implement a new business plan. The traditional activist, by contrast, acquires a minority holding as a means to influence change, prototypically via a proxy contest and the replacement of board members.