News

April 24, 2018

Okapi Partners: Not One to Waste a Crisis – The Deal

By Michael Brown

When Bruce Goldfarb decided to leave his job as global head of M&A advisory at Georgeson Inc. to start his own advisory shop in 2008, the conditions were less than ideal.

The financial crisis had made many investors skittish, and the financial services sector was one of the whipping boys of the crisis. Companies in other industries—would-be clients of Goldfarb’s new venture—were hunkering down and husbanding cash, and it was unclear how many would be willing to pay for a separate service advising on shareholder-relations matters outside of their typical PR and outreach budgets.

But in other ways, Goldfarb’s timing was perfect. The sell-off in the market had given hedge funds an opportunity to build up stakes in companies that had lost billions of dollars in value in months despite solid business models. Private equity, too, was looking for opportunities where shareholders would be pressed to make decisions. Management teams were worried that if something didn’t turn for the better, shareholders would come knocking, demanding better returns. The world of finance was in need of a calming voice and Goldfarb was happy to provide it.

“‘I like to say that it was a series of fortunate events. The beginning of 2008 was clearly not the best time to start a new firm but we charged ahead, free of conflicts and happy to take on assignments for either side of a campaign,” said Goldfarb, co-founder, CEO and president of Okapi Partners LLC in an interview with The Deal. “Looking back, it turns out that we were at the beginning of a big change in shareholder activism, corporate governance and overall engagement with investors.”

After working with Georgeson colleague Patrick McHugh to collect the necessary funds in a friends- and family-led funding round to start the business, Goldfarb quickly gained traction, growing from three employees at the start of 2008 to eight professionals and a host of big-name clients by year’s end.

He quickly grew to prominence successfully advising Denny’s Corp. (DENN) management on their proxy fight with a group of shareholders in 2010, crafting one of the first management defense strategies in activist campaigns. Goldfarb would go on to become a long-time adviser to management of the restaurant chain and has since worked with management teams at a plethora of companies. He would later go on to advise Starboard Value LP on its campaign against Darden and is still an adviser today, pulling knowledge gained from campaigns advising companies on the insurgent effort that led to the sale of Red Lobster chain.

“We advise shareholders and management teams on a variety of issues, from annual meetings and ESG matters to board selection and compensation issues,” said Goldfarb. “Each type of client helps to inform our business, and we have tried to stay unencumbered by a particular mandate in terms of who we advise.”

The impetus to start Okapi, was, in many ways a series of fortunate events dating back to Goldfarb’s early days cutting his teeth at Cravath, Swaine & Moore LLP, where he specialized in corporate law, mergers and acquisitions, securities transactions and international matters. He worked on a few proxy contests in his early days and became the go-to at the firm during his six-year stint.

After Cravath he moved into the legal department of the investment management firm, Scudder, Stevens & Clark, now a part of Deutsche Bank’s Asset Management unit, as a senior vice president.

As such, he chaired Scudder’s proxy review committee, serving as the point person for the Scudder Funds proxy solicitation effort as part of the firm’s acquisition by Zurich Financial Services Group before moving to Georgenson, where he would meet his future business partner, McHugh, now a senior managing partner at Okapi.

Goldfarb became an expert in proxy contests early on in his career, just as the phenomenon was beginning to take off among investors. It was also a time where the internet was coming into its own and shareholders could communicate much more openly and freely with each other and with management teams and board members.

During his time at Georgeson, activism and proxy wars grew so much more prevalent that Goldfarb found the firm unable to advise many prospective clients because of conflicts that would pose with existing clients. Leaving to start Okapi would let Goldfarb take advantage of the opportunities these new clients represented.

Today, Okapi and Goldfarb have worked with everyone from activist investors such as Paul Singer’s Elliott Management Corp, and management teams at CVS Health Corp. (CVS) to private equity firms such as H.I.G. Capital LLC, and just about everyone in between. The company’s bread and butter is working with insurgent investors running campaigns against company management or company management teams on defensive tactics when an activist comes knocking.

Goldfarb and Okapi have grown with the world of corporate activism. In 2017 there were 803 activist campaigns at U.S. corporations, up from 737 for all of 2016, according FactSet Research Systems Inc. Okapi has built its business since 2008 through investment in proxy solicitation and investor response as well as adding personnel and technologies to better assist its clients, especially as the world of activism becomes even more fast-paced and complex.

“The past 10 years started out with tremendous volatility and there were significantly undervalued companies in which investors saw value,” Goldfarb. “[Investors] recognized that there could be even more value by becoming vocal with the companies in which they invested.”

When companies find themselves the target of an activist campaign or an insurgent is debating if a company is worth a look, often times Goldfarb is one of the first calls made.

The firm has grown in response, expanding its core of advisers and capabilities. In 2017 it advised issuers and activists in 26 campaigns in what was one of Okapi’s most successful years since its founding in 2008. The year also saw Okapi provide advice to more than 100 corporate clients on proxy solicitation matters, corporate governance issues and shareholder engagement strategies.

To address growing demand for information related to such efforts, the company in February made its first acquisition, agreeing to acquire Market Intelligence Group LLC, a stock surveillance and shareholder intelligence firm.

“Based on listening to the needs of many clients and advisers, we realized that it would be beneficial for Okapi Partners to provide stock surveillance in-house,” said Goldfarb. “With Okapi Market Intelligence Group, we can provide our clients access to what stock surveillance services can offer but also enhance it with the work that we do and our experiences with a company and its shareholders.”

Market Intelligence’s services, which can track the most current stock holdings and detect patterns in shareholder ownership in almost real time, can provide leverage for all types of investors, company management and advisory shops.

To prevent being caught by surprise, corporate executives are turning to stock surveillance companies to help them identify insurgent investors early, before their allocations are required to be disclosed publicly through filings with the Securities and Exchange Commission.

“Whether we are working for a public company on its annual meeting, an M&A campaign or engagement outreach or advising an activist investor, understanding a company’s constantly-changing shareholder composition is integral to the success of any voting campaign,” added Patrick McHugh in a statement.

Adding talent from all over the financial world, Okapi now has a staff of 18 with numerous call-center operations around the country and a diverse line-up of services and clients.

“We are selective in our hiring and we really focus on bringing in strong senior talent to our team, especially those who can add to our collective wisdom and also know how to execute on a strategy. We often ask ourselves: what do we want to provide and how does this person’s skills fit into our current team?” said Goldfarb.

Recently, Okapi hired Alexandra Higgins as a managing director, from Institutional Shareholders Services Inc.

“I’ve long admired Okapi Partners for being instrumental in helping clients achieve their goals,” Higgins said in a March statement. “Okapi has been at the forefront of corporate governance and shareholder activism for the past several years, and its people have developed respect in the field for their collaborative work with both clients and their advisers.”

Going forward, Goldfarb said he and the firm will continue to expand its services and expertise but make sure to stay true to its roots of advising its clients and helping parties on all side of shareholders disputes. Goldfarb himself says he still works with call center employees on shareholder outreach. He’ll even field calls himself and talk retail investors through issues at a particular company.

Goldfarb is a graduate of the Columbia University School of Law. He also earned a B.A. in the History of Art from the University of Pennsylvania concurrently with a B.S. Economics with a concentration in Finance, from the Wharton School.

Read online here.