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February 05, 2020  

Activist Manager Offers Fund for Buyout Play

Activist shop Engaged Capital is raising money for a special-purpose vehicle that would aid its quest to take over a publicly traded nutrition and weight-loss company.

Engaged already has amassed a 14.9% stake in Medifast, becoming one of its largest shareholders. In a letter to prospective investors in the special-purpose vehicle last week, business-development specialist Richard Gray wrote that Engaged has extensive experience with Medifast, giving it “a very differentiated and well informed point of view.”

The Newport Beach, Calif., firm’s investment marks the second time it has taken a position in Medifast. The initial play saw chief investment officer Glenn Welling sit on Medifast’s board from 2015 to early 2018, a period when the Baltimore company’s share price surged before falling by nearly half in 2019.

By then, Engaged had exited its original position. In the letter, Gray called the investment one of Engaged’s most successful, noting it generated an internal rate of return of 31.5% and a total return of 131.7%. Medifast, founded in 1980, has been a public company since 1993. It has a market capitalization of $1.2 billion.

Gray didn’t disclose how much money Engaged is seeking to raise for the special-purpose vehicle. He also didn’t specify a lockup period. Takeover bids by hedge funds have been rare, and this would be the first such effort by Engaged. The firm, which refers to itself as a “constructive activist,” typically invests in the shares of small- and mid-cap companies.

Engaged is partnering with an unidentified private equity firm that would presumably lead the buyout.

Welling founded Engaged in 2012 after four years as a managing director at pioneering activist manager Relational Investors. He also spent time at Credit Suisse.

Engaged was managing $572 million of gross assets at yearend 2018. Last year, its Engaged Capital Flagship Master Fund gained 30% through Nov. 30.