Activist Impactive eyes proxy fight at Envestnet amid sluggish stock price
15/11/2022 12:00
By Svea Herbst-Bayliss
NEW YORK, Nov 15 (Reuters) - An activist investor with a
large stake in Envestnet Inc. ENV.N plans to ask for board
seats to push the financial technology company to improve its
stock price by cutting costs and overhauling pay, two people
familiar with the matter said.
Impactive Capital, founded by veteran investors Lauren
Taylor Wolfe and Christian Asmar, owns a 7.2% stake in Envestnet
and is now laying the groundwork for a proxy fight after months
of private negotiations broke down, the sources said.
The hedge fund, which oversees $2.7 billion in assets and is
one of a small number of activist firms run by a woman and a
minority, proposed adding Wolfe to Envestnet's board but was
rebuffed.
Impactive is now ratcheting up the pressure on Envestnet,
which provides technology and automation software for financial
advisors and banks. In a letter to the board, seen by Reuters,
Impactive wrote it sees "no choice but to consider nominating a
slate of directors" to help correct a string of failures,
including a sluggish share price.
A representative for Envestnet was not immediately available
for comment.
Envestnet has seven board members but only three stand for
re-election every year, putting the company, which has a market
value of $3 billion, out of step with corporate America, where
directors are generally voted on annually.
The company's shares, which have lost 34% in the past 52
weeks, have underperformed the broader S&P 500 stock index by
124% since February 2015, when James Fox, who chairs Envestnet's
board, joined the group.
Costs have climbed as spending has ballooned, the hedge fund
said, noting that the expense base has risen by $180 million
since 2020 even though management in 2021 committed to $40
million to $45 million in incremental annual spending on the
investment plan.
Impactive criticized the board for failing to evaluate what
the returns would be on the spending. "In the 30 press releases
the Company has issued this year to announce acquisitions,
partnerships, initiatives, and new products, there has not been
one mention of profits, costs, or returns," the letter said.
The hedge fund also criticized the board for authorizing
rich paydays for management and board members -- who earned $19
million over the past five years -- as shareholder returns
lagged.
"Even as revenues doubled over the past 5 years, economic
profits are down 40%, while management compensation is up," the
letter said, calling this a "shocking abandonment of (the
board's) fiduciary duties."
Since its founding in 2018, Impactive has distinguished
itself from other activist investors by consistently acting
behind the scenes, rather than by demanding board
representation, to work on improving companies' performance.
Asmar and Wolfe have served as directors of Avid Technology
AVID.O and HD Supply Holdings - but after being invited to
join, not by having other shareholders vote them into the
boardroom. Home Depot HD.N later bought HD Supply Holdings.
But Envestnet roundly rejected Impactive's earlier
suggestions that Wolfe join its board, saying she is "not a good
fit." Impactive disagrees and wrote that its record on boards
has spanned years and "led to over 30% annualized returns for
Impactive."
(Reporting by Svea Herbst-Bayliss; Editing by Bradley Perrett)
((svea.herbst@thomsonreuters.com; +617 856 4331; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))