Old M&A dogs try old tricks with new activist fund

January 21, 2015

By Richard Beales

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Can old dogs make money out of old tricks? That’s the question facing ex-JPMorgan M&A boss and finance chief Doug Braunstein and longtime deal lawyer Jim Woolery. The two have collected $250 million and a network of corporate chieftains to kick-start a fund that will invest in companies and persuade them to do deals that boost share value. The question is whether there’s room for permanently well-mannered activism in 2015.

Cage-rattling of all flavors – from the publicly aggressive variety exemplified by Dan Loeb’s Third Point to the more private style of Nelson Peltz and his Trian fund – has richly rewarded investors of late. The strategy returned 21 percent in 2012, 16 percent in 2013 and 5 percent last year, according to Hedge Fund Research. In each instance that beat most other hedge-fund approaches, which last year on average delivered a measly 3 percent.

That’s one reason behind the timing of Braunstein and Woolery’s launch of Hudson Executive Capital. Another is the booming M&A market in which investors are welcoming deals designed to enhance value – even boosting the shares of acquirers making expensive purchases more often than is usual.

The two are determined to use their long dealmaking experience to find receptive targets, invest and then begin “constructive engagement,” a term Hudson’s website capitalizes and highlights with an “SM” service-mark symbol. The approach has echoes of decades-old merchant banking methods.

With company bosses attuned to governance and the presence of less friendly activists, Hudson’s method may well fill a gap in the market for a time. But even the likes of Peltz keep the possibility of confrontation in reserve. Without that stick, some companies may not find the carrot sufficiently appealing, especially if stock market players moderate their enthusiasm for deals.

While both have a wealth of advisory experience, neither Woolery nor Braunstein has money management on his resume. The latter also took a lot of stick over JPMorgan’s famous $6 billion London Whale loss, which occurred on his watch as chief financial officer. That means investors in Hudson have to believe not just that old ideas will work again – but that the fund founders can learn some new tricks, too.

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