11/6/15

Everyone has read news in the past about a big buyout in the stock market. And often the news will report that the stock in the company that is being acquired skyrocketed on the day. Envy tends to follow.

Generally, companies that are bought, are bought for a significant premium. Otherwise, shareholders would likely reject the offer. So when you hear of a big takeover, it’s not unusual to hear of a 20%,30%, even a 100% pop for shareholders on the day of the announcement.

So how to you identify the next big takeover? One of the easiest ways is to follow big, influential shareholders into stocks where they are pushing companies to sell themselves.

This week, we owned a stock in our Billionaire’s Portfolio, MedAssets (MDAS), that was taken over for a 33% premium. We held this stock for only two months, following the lead of one of our favorite activist investors, Starboard Value.

Starboard is one of the best at articulating recommendations for management and helping them execute on it. We followed Starboard Value into Office Depot and doubled our money. Starboard is run by the Wharton educated Jeff Smith, who is a tenacious and detailed activist investor. He has one of the best activist track records in the business. Since inception almost 13 years ago, Smith’s fund has made money on 82% of their activist campaigns (prior to MDAS). That’s one of the highest win rates in the industry.

Starboard took a huge activist stake in MedAssets in August and wrote a detailed letter to the company, outlining a plan to unlock value, which included strategic alternatives (such as the sale of the company).

Fast foward just two months: MedAssets was the second biggest winner in the entire stock market on Monday.

There has been a lot written about billionaire investing and activism over the past couple of years. It’s become a very hot topic. And the investors themselves, which once coveted anonymity, now utilize the spotlight to their advantage. Twitter, the internet and the media obsession with their wealth gives them the platform to spread their message about underperforming companies, and garner support from fellow shareholders. Still, finding the right investors to follow, and identifying the right opportunities is paramount.

Out of the 29 campaigns we’ve exited in our Billionaire’s Portfolio since the inception of our service, in August of 2012, five of the stocks were acquired.

That’s 17% of the stocks we’ve selected, and exited, that have been taken over for big premiums – so, strong anecdotal evidence that following influential shareholders that are pushing for a sale works!