Acquisition talks between EMC Corp. and Dell Inc. are significant not just for the size of the potential transaction but also for a common element behind this and dozens of other major tech deals over the past decade: Elliott Management.
The possible tie-up between the $50 billion storage company and the privately owned computer maker, which surfaced on Wednesday, would be the largest tech deal ever and would solidify Elliott’s reputation of sparking key and sizable transformations throughout pockets of the industry.
While other famous activists such Nelson Peltz‘s Trian Partners and Bill Ackman‘s Pershing Square have steered cleared of technology investments because of their volatile nature, Elliott, run by billionaire hedge fund manager Paul Singer, has made a name for itself in the technology sector.
Elliott has agitated for changes at EMC since 2014, and on Thursday the hedge fund announced yet another tech-focused position and plan: it disclosed stakes in U.S. video-conferencing equipment maker Polycom Inc and Canadian telecoms provider Mitel Networks Corp and pushed for a combination of the two.
Elliott’s aggressive tech investing also stands out for its ability to lay the groundwork for wider consolidation in the section of the industry it targets.
“They’ve been able to come into companies that have faced challenging markets and been able to drive change,” said Macquarie analyst Rajesh Ghai.
The multi-strategy hedge fund founded by Singer in 1977 has pursued more than 40 campaigns aimed at tech companies in the 11 years since its star tech investor, Jesse Cohn, pioneered this arm of the firm.
Among the keys to Elliott’s success with technology investments is that Cohn, 34, is a former programmer who has built a team of industry experts. Cohn’s main approach to tech investing, like that of the broader Elliott philosophy, is to find undervalued companies in struggling sectors and push for changes.
“The problem with technology is most technology companies are too dynamic,” activist investor Pershing’s Ackman said at a CNBC event in July. “I mean, you wake up and there’s a couple of guys in the garage a block from Stanford University – a couple of women in a garage – and they are starting a new business that’s disruptive.”
Trian’s Peltz, at that same event, said: “We like businesses … that sort of have moats around them. And technology is one that isn’t.”
But Elliott has targeted parts of the tech industry where the moats have already been penetrated, on the bet that the business segments are ripe for consolidation.
Compuware Corp, Riverbed Technology Inc., BMC Software Inc, NetApp Inc, Novell Inc and Blue Coat Systems Inc have all been Elliott targets in the past few years. Tech-focused private equity firm Thoma Bravo ended up buying Compuware, Riverbed and Blue Coat Systems.
Elliott has pushed for an EMC breakup since 2014, entering into a standstill early this year that lasted through September. In June, Elliott said cloud-computing software maker Citrix Systems Inc should sell some units, cut costs and buy back shares to make up for six years of underperformance. Citrix named Cohn to the board the following month.
One tactic Elliott has rolled out in the tech space is offering to buy a company it’s targeting, given that part of its multi-strategy approach includes a private equity division that can manage businesses. Few activists are willing to make a buyout offer because operating a business is not part of the strategy’s remit.
Elliott owns a 4.1 percent stake in CDK, an automobile software provider. Last month, Reuters reported Elliott was seeking to team up with a private-equity firm to buy out the company.
(Editing by James Dalgleish)