Alexander Roepers‘ insights from 25 Years of constructive shareholder activism presentation from the 9th Annual Value Investing Congress – New York.

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Alexander Roepers: Introduction – Atlantic Investment Management

Value-oriented global equity investment firm with $1.7 billion in assets under management

Investment approach:

  • Concentration of capital on highest conviction investment opportunities
  • Selection from well-defined areas of competence, universe of industrial, consumer products and services companies with solid balance sheets
  • Use of significant minority stakes (2-7%) to enhance and accelerate shareholder value through constructive shareholder activism
  • Strict buy/sell discipline based on cash flow valuation multiples, combined with active trading around core positions

Long/short and long-only activist equity funds

Founded in 1988 by Alexander Roepers; SEC registered

New York and Tokyo offices; 28 team members, including 11 senior equity analysts

Alexander Roepers: Cambrian Fund – Performance Record

  • Atlantic’s largest fund with $900 million of AUM
  • 21-year audited track record
  • Consists of 6 to 7 U.S. activist positions (10-20% of capital each)
  • The fund does not use leverage or derivatives

Alexander Roepers Cambrian Fund

7.7x the total return of the S&P 500 since inception

Alexander Roepers Cambrian Fund 2

Alexander Roepers: Insights from 25 Years of Value Investing

Have a well-thought-out investment strategy

  • Focus on carefully defined universe of investment prospects
  • Stay with what you know well (“area of competence”)
  • Stay with what you can analyze
  • Invest, don’t speculate

Be consistent, disciplined, persistent and patient

  • Have conviction based on knowledge and your own on-going due diligence
  • Do your homework as if you are buying the whole business
  • Read / Call / Visit – crunch numbers and kick the tires first!
  • Be stingy – Wait until the opportunity falls into your lap. Stick to a pre-determined valuation level, don’t chase stocks
  • Don’t be greedy – Scale-out at a pre-determined valuation level
  • Don’t use leverage – Not in your portfolio, and stay away from levered companies
  • Concentrate funds on your highest conviction ideas

And most importantly…

  • Be honest and transparent with your investors, company executives of your investment positions, and partners/team members of your firm

Our Approach:

1) Work with management behind the scenes as much as possible

2) Maintain liquidity to allow trading and to sell

3) Maintain constructive, respectful dialogue with management

Our Objective: Enhance and accelerate process of shareholder value creation while retaining liquidity

Our Process:

Build strong rapport with CEO/CFO through multiple on-site and face-to face meetings

  • Propose win-win solutions for management and shareholders
  • Submit proposals in writing to CEO and, as needed, to the Board of Directors
  • Broaden discussion of proposals, as appropriate, to include other large shareholders, financial media and private equity groups

Tailor-made proposals to unlock value addressing any of the following areas:

  • Investor Relations: messaging, access, crafting 3-year earnings road map
  • Use of Capital: dividend, share buyback, debt repayment, CAPEX, M&A
  • Corporate Structure: sell underperformers, splits or spins, streamlining
  • Operational: restructuring to close gap to top peers in relation to profit margins, working capital, management changes at operational or C-level, etc.
  • Corporate Governance: critical review of executive compensation, board make-up, corporate costs, etc.

Alexander Roepers: Companies in which Atlantic was a Constructively Engaged Shareholder

United States:

Alexander Roepers Atlantic was a Constructively Engaged Shareholder

Europe:

Europe

Japan:

Japan

Alexander Roepers: Baker Hughes

Business Description

  • Third largest oilfield services companies in the world after Halliburton and Schlumberger.
  • Leading provider of completion services, specialty chemicals, drill bits and artificial lift, both onshore and offshore.
  • Global infrastructure with 50% of revenues derived from faster growing international markets.

Thesis

  • Broad based opportunity for self help to enhance profitability and cash flow through better execution in the field and more efficient use of capital.
  • Will generate meaningful free cash flow for the first time in several years through enhanced profitability, increased emphasis on working capital efficiency and lower CAPEX.
  • North America (“NA”) margin improvement: BHI will begin to close gap with peers in the critical NA market as it fully digests the 2010 BJ Services acquisitions and as it realizes the benefits of continuing infrastructure investment.
  • Improvement in $6 billion pressure pumping operations has begun.
  • International profits continue to improve.
  • Improvement in operating management: recent high-level hires from Halliburton and Schlumberger.

See full presentation on “Alexander Roepers: Insights From 25 Years of Shareholder Activism” in PDF format here.

Alexander Roepers: Insights From 25 Years of Shareholder Activism