JANA wins two board seats at software firm New Relic. This is what may be ahead
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Business: New Relic is a software-as-a-service company, delivering a software platform for customers to collect telemetry data and derive insights from that data in a unified front-end application. The company offers several products through its cloud-based, extensible platform that allows users to store, analyze, and collect telemetry data. New Relic Instant Observability is an open-source platform that provides pre-built dashboards and integrations as well as alerts and notifications for over 450 technology and frameworks. You can also create custom apps with the help of open-source frameworks.
Stock Market Value$1.13B = $46.65/share
The percentage of ownership: 4.9%
Average cost: n/a
Commentary of an activist:JANA was established in 2001 by Barry Rosenstein and is an experienced activist investor. It was founded by Barry Rosenstein in 2001. The firm took well-researched activist positions and developed long-term plans. Rosenstein described his activist strategy as “V cubed.” His activist strategy was called “V cubed” by Rosenstein. This worked well for them through 2008 when the 19 13Ds they filed had an average 13D holding period of 23 months and averaged a return of 39.4% versus 9.9% for the S&P 500 during those holding periods. Since 2008, they have gradually shifted that strategy to one which we characterize as the three “S’s” (i) stock price – buying at the right price; (ii) strategic activism – sale of company or spin-off of a business; and (iii) star advisors/nominees – aligning with top industry executives to advise them and take board seats if necessary. Since 2008, their average holding period with this philosophy has been approximately nine months, but also relatively successful – averaging a return of 16.2% versus 9.4% for the S&P 500 over the average nine-month holding period.
You can find more information here June 6JANA entered into a cooperative agreement with the company, whereby the company accepted the resignations of Dan Scholnick, Adam Messinger and Jim Tolonen, and to appoint Kevin Galligan, partner and director of JANA Strategic Investors’ research, and Susan D. Arthur,CEO of CareerBuilder, as board directors. JANA agreed not to send its May 20 nominee notice to JANA Strategic Investments and to comply with certain usual standstill provisions.
JANA isn’t the only activist that has engaged with New Relic. Engaged Capital and New Relic reached an uncommon agreement last summer. Radhakrishnan (“RK”) Mahendran (partner at HMI Capital), was elected to the board with a term that expires at the 2023 Annual Meeting. Engaged released a presentation in October 2021 that highlighted its beliefs about the reasons for underperformance. These included issues with technology, product strategy, key area product failures, customer focus, and high turnover of leadership. The company felt that most of the historic problems had been resolved, with a new CEO and an executive team. This was also reflected in their belief that they were making progress on their turnaround plans. However, New Relic was still trading at a significant discount to peers – 6x EV/Revenue versus 20x and 37.5x for peers Dynatrace and Datadog, respectively. Engaged’s plan has not been turning out as they had hoped, with the stock down 23.30% since the date of their settlement versus -4.84% for the S&P 500 over the same period. JANA noticed this and decided to take action. With one of their own board members, JANA will be better positioned to create shareholder value.
JANA settled here for two boards seats, one for Kevin Galligan who is a partner in JANA Strategic Investors and the director of research, as well as one for Susan D. Arthur CEO of CareerBuilder. This is consistent with JANA’s activist strategy – buying at a good price where there is an opportunity for strategic activism and operational activism in conjunction with a director with industry or operational experience. Galligan, Arthur and Galligan are board members with operational and strategic experience. They can choose the route that will create most shareholder value. JANA has recent experience in both of these areas in the technology sector – their most recent campaigns in the sector are Zendesk, where they successfully opposed the ZEN/MNTV merger and are now seeking board seats; and Vonage and Perspecta, where they successfully advocated for a sale of the company in both cases.
Ken Squire founded and is president of 13D Monitor. This institutional research service focuses on shareholder activism. Squire also is the creator and portfolio manager at the 13D Activist Fund. A mutual fund that invests primarily in activist 13D investments, 13D Activist Fund is also his creation. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies.