Engaged Capital may be smaller and less well known than some other activist hedge fund firms — but it has been one of the most aggressive players in recent years.
And this year it is delivering for its investors. The firm headed by Glenn Welling posted a 10 percent gain in the second quarter. As a result, it returned 27 percent in the first half, according to a person familiar with the results. This compares with a 17 percent gain for the Standard & Poor’s 500 stock index. Engaged declined to comment.
The firm’s gains were driven by an activist target that recently agreed to be taken over, another target that aborted a merger last year, and a company that is also the target of another, perhaps better-known activist.
Engaged manages $950 million. As of the end of the first quarter, it had $712 million invested in 12 U.S. stocks, according to its most recent 13F regulatory filing.
On June 24, Del Frisco’s Restaurant Group, which owns four restaurant chains, agreed to be acquired by L Catterton, a consumer-focused private equity firm, for $8 per share. This works out to a 21 percent premium to the 30-day volume-weighted average price as of June 21, according to the company announcement. The price tag is nearly 12 percent higher than Del Frisco’s closing price at year-end.
Del Frisco’s is Engaged’s seventh-largest long position. Back in February, Del Frisco’s agreed to expand the size of its board by one director and appointed an Engaged nominee, Joseph Reece, to sit on its staggered board of directors. Reece was also appointed chairman of the transaction committee. The company also agreed to terminate its short-term shareholder rights plan.
This agreement came two months after Engaged disclosed it owned a little less than 10 percent of the shares and urged the company to name key shareholders to its board and form a review committee to evaluate strategic alternatives.
Engaged’s best-performing stock this year is an activist target that aborted an acquisition last year. Shares of Rent-A-Center, Engaged’s second-largest long, surged 66 percent in the first half of the year, closing at $26.64.
In June 2018, the rent-to-own retailing giant announced a deal to be acquired by buyout specialist Vintage Capital for $15 a share in cash. Vintage already owned Buddy’s Home Furnishings, a chain of rent-to-own stores, so it needed antitrust approval from the Federal Trade Commission.
The deal also allowed either party to extend the agreement for 90 days if it did not receive the approval by December 17, 2018 or if neither party gave notice by then for either one of them to terminate the deal.
Sure enough, Rent-A-Center killed the deal last December. Vintage then sued Rent-A-Center, which in turn sought a previously agreed-upon breakup fee.
This past April, the two sides settled, and Rent-A-Center received $92.5 million in cash.
More importantly, the stock is now trading more than 80 percent higher than the price Rent-A-Center agreed to accept from Vintage.
Meanwhile, shares of Magellan Health, Engaged’s eighth-largest holding, rose about 20 percent in the first half of the year.
Earlier this year activist hedge fund firm Starboard Value launched a proxy fight, seeking to nominate six individuals to the managed care company’s board. But in March the two parties reached a compromise agreement whereby Magellan named four independent directors to its board.
Starboard is the third-largest shareholder, while Engaged owns roughly one-tenth Starboard’s position.
Engaged’s largest position is The Hain Celestial Group, the organic and natural products company. Engaged is also by far the largest shareholder.
Since the end of the first quarter, Engaged has added more than 4 million shares to its position, bringing its total stake to more than 21 million shares. Welling is a member of the compensation committee and strategic working group.