Activist hedge funds are hardly a new phenomenon, and Bill Ackman of Pershing Square is certainly not a novice in the game. While activist funds have been on the scene for decades, the motives that lay behind the activism have changed dramatically.
Earlier versions of activism were analogous to private equity plays, in which the fund’s stake was typically little more than holding a promising stock for a long-term gain. For the reader who is unfamiliar with the motives of today’s activist hedge fund, in general, or Bill Ackman in particular, please take a moment to review this Hedge Fund Marketing Association article for further insights.
Today’s Activism
Activism in the 21st century has taken a different tack and Ackman’s game plan for ADT is likely not to be one for the long-term. Automated Data Processing (ADP) is, by all accounts, a quality enterprise. Founded in 1949 by Henry Taub and launched as Automatic Payrolls, Inc., the company grew to achieve almost $12 billion in annual revenue in 2016.
On word of Ackman’s involvement, ADP’s stock rose 2.9 percent. One can readily calculate the monetary gain on Pershing Square’s eight percent stake. It is in the millions of dollars, practically an overnight windfall.
Ackman’s Goal
Although current ADP CEO, Carlos Rodriguez, has increased share value over his tenure, beat earnings estimates in the last three quarters, and grown gross revenue over the past three years or more, Bill Ackman feels the company can do better.
His stated intentions are to seat at least three board members, accelerate the firm’s growth, improve the quality of its software, enhance customer service, slash operating costs and increase the company’s efficiency overall, thereby increasing the company’s value to shareholders and customers.
These are lofty goals, and there are impediments. First, and foremost, Carlos Rodriguez doesn’t plan to go quietly into that good night. The board has already rebuffed Ackman’s request to extend its August 10 deadline for board nominations, which could force Ackman to sit on his plans for almost a year or, alternatively, gain the support of one-third of ADP’s shareholders in order to call for a special shareholder meeting.
Given the excellent record of accomplishment that Rodriguez has achieved in his 6-year tenure, the prospect of securing the votes of one-third of ADP’s shareholders seems a daunting task.
What About Hedge Fund Jobs?
While the relationship between hedge fund activism and hedge fund jobs is not necessarily a straight line, one can certainly understand how the in-house talent required by an activist firm may be more diverse than may those required in other fund strategies.
As the 2017 Hedge Fund Compensation Report demonstrates, people gain entry into the hedge fund industry from diverse backgrounds and activist funds are one reason that this is the case.
As for Bill Ackman, this isn’t his first rodeo and, more to the point, if he succeeds in ousting Carlos Rodriguez, it won’t be the first notch in his gun. Ackman has engineered the demise of CEOs at Air Products and Canadian Pacific Railway.
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