What Elliott could also be as much as with F5 Networks after previous success with tech

Enterprise: F5 is a number one supplier of multi-cloud software companies that enable its clients to develop, deploy, function, safe and govern functions in any structure, from on-premises to public cloud. the Firm’s Site visitors Administration Working System (TMOS) based mostly choices embody software program merchandise for native and world site visitors administration, community and software safety, entry administration, Internet acceleration and varied community and software companies. These merchandise can be found as modules that may run individually or as a part of an built-in resolution on the corporate’s purpose-built BIG-IP home equipment and VIPRION chassis-based {hardware}, or as software-only Digital Editions.

Inventory Market Worth: $9.8B ($159.46 per share)

Share Possession:  n/a

Common Value: n/a

Activist Commentary: Elliott has a historical past as one of many premiere activist buyers in know-how corporations. Their crew consists of analysts from main tech personal fairness companies, engineers, working companions – former know-how CEOs and COOs. When evaluating an funding additionally they rent specialty and basic administration consultants, professional price analysts and trade specialists. They usually watch corporations for a few years earlier than investing and have an intensive steady of spectacular board candidates. Elliott filed a 13D on F5 competitor Citrix Techniques, Inc. (CTXS) on June 11, 2015 and outlined a plan for the Firm that included the analysis of non-core property, together with the sale or spinoff of the GoTo franchise, which was completed on February 1, 2017. Elliott companion Jesse Cohn was on the board of Citrix from July of 2015 to April of 2020.

Elliott, which has a place in F5 in response to a number of stories, believes there are operational and strategic alternatives at F5 to create shareholder worth.

F5’s predominant competitor is Citrix Techniques, Inc. Elliott had a stay 13D submitting on Citrix from June of 2015 till November of 2019, and from July of 2015 till April of 2020, Elliott companion and head of U.S. activism, Jesse Cohn, was on the Citrix board of administrators. So, Elliott has gotten to know the trade and F5 very nicely, however actually couldn’t put money into F5 till Jesse left the Citrix board simply over six months in the past.

Like Citrix, the first activist alternative right here is operational. The corporate’s spending is rising quicker than its income, and two latest acquisitions that haven’t been built-in but haven’t helped its working margins, which proceed to say no regardless of robust gross margins. Elliott would seemingly work with the board and administration to get working margins from 30.5% to 36%-38%, a variety the corporate was in for 10 straight years previous to 2019. Whereas the jury remains to be out on the corporate’s two latest acquisitions (Form Safety and NGINX), focus must shift to integrating these companies and halting future acquisitions that don’t make sense. This isn’t to say that smaller acquisitions with companies that may very well be bought via F5’s channels don’t make sense, like we noticed Akami do when Elliott was concerned there.

On this planet of activism, Elliott is primarily recognized for his or her profitable strategic activism at small/midcap know-how corporations and usually comes into conditions like this with a plan to pursue a sale of the corporate. Nonetheless, they’re additionally very adept at operational activism as they’ve proven at Citrix and Akami, and like these conditions the operational path is the popular path to create shareholder worth. However Elliott has deep tentacles within the personal fairness and strategic acquisition communities and so they at all times have a strategic plan – this time it’s simply plan B.

If the operational enhancements do not work out or administration is unwilling or unable to make the required enhancements, we are able to anticipate Elliott to advocate for strategic choices. If so, it’s anticipated that there could be very robust acquisition curiosity from each personal fairness and strategic acquirers similar to Broadcom. The corporate is without doubt one of the most cost-effective names within the know-how sector proper now, buying and selling lower than 10x money movement, but the corporate remains to be rising and is very worthwhile. A non-public fairness agency may pay north of $175 for the corporate whereas an acquisition for a strategic investor like Broadcom may make sense north of $200.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments