Friday, Jan 22nd 2021

The value of active management


Earlier this week, Titan announced a big win with Opportunities company Collectors Universe (CLCT), which received an updated acquisition offer that came in a whopping 22% higher than the original offer from just two months prior.

This obviously was a great result for all of CLCT's shareholders, but what exactly happened behind the scenes that led to this outcome, and what was the role of investors like Titan in driving it?

Stepping back, when any buyer looks to acquire a public company, they need to gain the approval of the majority of the target company's shareholder base.  

This in theory gives all shareholders - from the biggest investment firms to your everyday mom and pop investor - an equal footing on which to voice their opinions on the proposed deal. 

However, with the rapid rise of passive ETFs and index funds, it's become increasingly difficult for everyday investors to make their voices heard in these types of situations.

These types of passive investment products often wind up holding huge proportions of the outstanding stock of public companies. 

However, they almost never vote against acquisition offers because they don't have fundamental views on the companies they own - they merely own the stocks in order to replicate a broader market index.

This means for many public companies, it's extremely challenging for the everyday investor to voice their opinion against acquisition offers they believe to be undervalued. 

In fact, in many situations, passive holders can account for nearly 50% of outstanding shares, which means virtually every other shareholder would need to vote against the acquisition in order to successfully block it or force a higher takeout price.

That's the exactly the situation we believe we found ourselves in with CLCT.   

In order to block the deal from going through at the original deal price, Titan engaged with many other active investment managers to agitate for a better valuation and commit to voting against the deal.

While such efforts involve a lot of work and behind the scenes coordination, we believe they were critical in securing the amended acquisition offer from the acquiring group.

This type of shareholder advocacy work is generally very time consuming and often results in no change in outcome at the end of the process.

However, we believe it to be a vitally important aspect of our jobs as investment managers - not just for our own clients, but for the thousands of other individual investors who depend on it to make their voices heard.

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