IN-DEPTH: Q&A with Petrus Advisers
An interview with Till Hufnagel, partner and head of activism at Petrus Advisers, an activist investor group operating since 2009.
Petrus Advisers is focused exclusively on European countries where it says it can invest like “locals” – can you expand on this approach?
We believe that to run a successful activist campaign, you should understand the companies you invest in and its market. You have to be familiar with not only the language, but also the press environment, the legal environment, etc. We wouldn't be suited to invest in Asia and North America, for example. We focus on markets and industries within which we are experts and, as you mentioned, locals.
Are there any specific industries you place a particular focus on and how has that changed in recent years?
We focus on industries where we have experience that we've built over decades and you'd find us in industrial companies, services, banks, real estate, software, energy as well as parts of the consumer and media value chain.
I'd say if you look back over the past five to seven years, we got ourselves more into software and also more into the consumer and media world. We do take views on the macro of these particular sectors and so obviously that can have an impact on how and where we invest or where we focus, given you have quite a few cyclical industries in there with banks, real estate, industrials. So, we do take that into consideration.
Since 2022, Petrus had pushed for various reforms at Swiss banking software developer Temenos which was shorted by Hindenburg Research in February. Petrus came out in support of the company and publicly urged it to launch litigation. A bold move?
We had been investing in the company for a year and a half and had publicly demanded change in areas including leadership. The business had, after our campaign in Q4 of 2022, changed the leadership and then they changed also part of the board, including the chairman, and had actually been improving operationally and recovering. Then Hindenburg, into that recovery, launched a report with various allegations.
What we did was a bit unusual. We backed the company even before they had completed the legal investigation that was later reported and we also increased our stake. We urged the company to take legal action. The company
did commission an independent investigation which ultimately proved the allegations baseless.
At French digital performance marketing company Criteo, Petrus also came out with a public statement in relation to quite a number of changes made there in relation to refreshing its board, undertaking a strategic review – all measures you applauded?
We had been engaging with the company on a few topics but had been and still are supportive of the management team. We did come across a few bumps in the road last year but the management team in particular reacted quite swiftly. We always try to talk to people behind the scenes first and solve things constructively. Here we've had a situation where the company’s Q3 2023 earnings call stated it had slashed its 2025 net revenue target. We raised some concerns around transparency. Although Q3 numbers were not good, Q4 numbers were actually pretty good and so the team probably felt good about the business as it was.
But we needed more transparency, so we ended up publicly demanding that in the shape of an investor day on its retail media business, and some form of openness regarding strategic options. We also asked for some changes on the board, in particular with the view to getting a better handle on transparency of the retail media business and the openness to strategic options. Those were the key asks. Then, a minor ask around how to structure their buyback activity given that the company had already approved a huge buyback volume.
We arrived at a situation where we ended up avoiding more escalation by agreeing on a compromise. The company will hold an investor day on the retail media business and has made clear they're open to all types of strategic options. We also agreed together with them on a new board member that was proposed initially by the CEO but who we also quite liked. All things considered, we found our way to a solution.
How do boards typically respond to your engagements when an initial advance is made?
I think historically many boards, looking back 10 to 12 years ago, would initially by design say “no.” They would argue that it was their business and their business to run. Fortunately, that has changed to a certain extent, and we've seen quite a few successful campaigns over the past decade.
We appreciate that there might be some advisors out there who recommend to companies to basically not engage, not give up information and sort of keep flexibility but our view is different. If you have the right intentions, it's always worth engaging with somebody who shows up with a good argument and a good case. And people can prove us wrong. We are happy to be proven wrong as long as that is helpful for the overall case. Take Temenos as an example, where we ended up defending the company against Hindenburg. I think the case hopefully proves that having a good relationship with someone like us can be helpful.
What activism trends have you noted in Europe? Looking at Germany, how do you feel the activism landscape has evolved there?
Looking at Germany, we have ended a phase of lower economic growth over the past few years and that by definition puts more pressure on companies to act. That can obviously make it necessary for shareholders to push harder if companies don't do that. I think overall, while it hasn’t seen enormous activist activity, I think activism has established itself as a theme in Germany, and stakeholders have learned to appreciate it and don't react negatively out-of-the box anymore which is very positive.
As 2024 progresses, what opportunities are you monitoring?
The theme of companies having to act in an environment with less growth is still there and so that's helpful. That's good for us in the mid-cap space as that's where we act. We see more and more passive money and less active money, which again is good and helps us identify opportunities that have been neglected by the capital market.
When we screen ideas and markets, it’s more driven by particular situations and not really industry-led. However, as an example, we have started to dedicate much more of our effort to real estate which we had pulled back from a little bit over the past four to five years when interest rates had gone through very low levels. Now with interest rates having shored up and quite a bit of disruption in the real estate world, we've become more active there. We also see very interesting opportunities on the software side and energy is another important theme - energy transition in particular.
