| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 11.77% | 32.61% | 32.93% |
The 13D Activist Fund delivered exceptional Q2 2026 performance of 32.61% net, driven by two strategic shifts: increasing portfolio concentration from 25-30 positions to 15-20 highest-conviction activist campaigns, and expanding globally with five Japanese and four European positions alongside eight North American campaigns. The fund capitalized on the continued rotation into small- and mid-cap value stocks while positioning for long-term activist value creation. Japanese activism represents a multi-decade opportunity, with companies holding cash equal to 49% of market cap versus 7% in the US, and only 244 of nearly 4,000 public companies engaged by activists over five years. Structural tailwinds include regulatory support from the Tokyo Stock Exchange, management turnover, global expansion, and capital inflows. New positions include Delivery Hero (Sachem Head campaign targeting CEO replacement and potential Uber acquisition), Money Forward (ValueAct driving SaaS profitability transformation), Nippon Express (Elliott monetizing real estate assets worth over 60% of enterprise value), and Synopsys (Elliott improving pricing and margins in EDA duopoly). Geographic exposure: 46% US, 27% Japan, 21% Europe.
The 13D Activist Fund invests in a concentrated portfolio of 15-20 activist campaigns globally, focusing on situations where sophisticated activists can create shareholder value through operational improvements, capital allocation changes, and corporate governance enhancements, with particular emphasis on undervalued Japanese companies holding excess cash and real estate assets.
The Fund expects performance to continue being driven by ability to invest in concentrated portfolio of best activist situations globally. While favorable market environment for small and mid-cap value continues, looking ahead the Fund believes returns will be driven by activist catalyst execution rather than market rotation. Activism in Japan is in early innings with multi-decade value creation opportunity ahead as structural forces continue to develop.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 7 2026 | 2026 Q2 | 3994.T, 9147.T, ACHC, DHER.DE, FUN, SNPS | activism, Concentration, Corporate Governance, global, Japan, small cap, value | - | 13D Activist Fund restructured to concentrate capital on 15-20 best global activist campaigns, adding nine positions in Japan and Europe. Q2 2026 returned 32.61% net as fund capitalized on small-cap value rotation and activist catalysts. Japanese activism offers multi-decade opportunity with companies holding 49% cash-to-market-cap and structural tailwinds from regulatory support, management turnover, and capital inflows. New positions target operational improvements, asset monetization, and margin expansion. |
| Jan 14 2026 | 2025 Q4 | 1944.T, 9501.T, 9531.T, EBCOY, FUN, ITGR, KAEPY, WEX | activism, Japan, semiconductors, small caps, Utilities, value |
6361 JP 9503 JP ITGR FUN WEX |
The 13D Activist Fund leverages record-high shareholder activism levels, expanding internationally with first Japanese investments in Ebara and Kansai Electric Power. Despite Q4 underperformance in a large-cap market, early 2026 shows promise with the fund outperforming Russell 2000. Portfolio turnover accelerated as activism becomes necessary for value realization in an increasingly passive market. |
| Oct 27 2025 | 2025 Q3 | ABG, ALV, APD, BILL, EXEL, KVUE, MIDD, MRCY, PENN, PFGC, PSO.L, QRVO, RIOT, SWX, TRIP, TWLO, VSAT, VSTS, WK, YETI | activism, M&A, SMID Cap, technology, value |
PFGC TRIP VSAT WK |
Strong Q3 absolute returns of 8.88% despite lagging Russell 2000. Fund positioned for anticipated rotation from large cap growth to SMID cap value, supported by lower rates and increased M&A activity. Activist success rates have improved dramatically with Universal Proxy Card. Added five new positions with strong activist catalysts while exiting underperforming positions. |
| Apr 5 2025 | 2025 Q1 | AAPL, AVGO, BLCO, CL, CMG, CNI, DKS, FTRE, HR, JNJ, KVUE, MIDD, MSFT, OR.PA, PG, QRVO, SN, SWKS, WEN, YETI | activism, consumer, M&A, semiconductors, small cap, value, volatility | - | 13D Activist Fund underperformed in Q1 2025 due to geopolitical volatility disrupting fundamentals and M&A activity. The fund added four new activist positions including Starboard campaigns at Kenvue and Qorvo focused on operational improvements. Manager remains disciplined, holding through activist cycles rather than trading volatility, expecting markets to rationalize and activist catalysts to drive future returns. |
| Jan 13 2025 | 2024 Q4 | ALV, APD, AZTA, BBWI, ENV, EXEL, FTR, HR, JHG, LW, MDU, MRCY, NSIT, PSO, RIOT, RPD, SWX, THS, TWLO, VSTS | activism, Bitcoin, Corporate Governance, Data centers, M&A, Proxy Fights, SMID Cap, value | - | 13D Activist Fund outperformed Russell 2000 in Q4 while repositioning into five new activist situations. Record-high activist success rates of 86%, expected M&A tailwinds under new administration, and extreme valuation disparity between small caps (1.7x book) and large caps (5.22x book) support the concentrated, catalyst-driven approach targeting undervalued SMID cap companies. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
ActivismThe fund restructured to concentrate capital on 15-20 activist campaigns with highest conviction, down from 25-30 positions. Added nine global activist positions (five Japanese, four European) alongside eight North American campaigns. Activism in Japan is in early innings with only 244 companies engaged over five years, creating multi-decade value creation opportunity. |
Shareholder activism Activist campaigns Board representation Capital allocation Corporate governance |
JapanJapanese companies hold cash and investments equal to 49% of market cap versus 7% in US. Activists can create value by increasing payout ratios from 20% to 60%+. Structural tailwinds include regulatory support from Tokyo Stock Exchange, management turnover, global expansion, and capital inflows. Nearly 4,000 public companies but only 244 engaged by activists. |
Japan equities Corporate governance Cash returns Shareholder payouts Currency hedging | |
Small CapsFund benefited from continued rotation into small- and mid-cap value stocks in 2026, offsetting large-cap dominated market headwind experienced in prior years. Market environment approaching level playing field for small and mid-cap value not seen since 2022. |
Small cap Mid cap Value rotation Russell 2000 | |
SemiconductorsSynopsys position focuses on EDA software essential for chip design with mission-critical status and high switching costs. Semiconductor R&D accelerating from 10% historical CAGR to 16% near-term driven by AI growth. Companies like Nvidia and AMD announcing increased R&D investments creating tailwind for EDA spending. |
EDA software Chip design Semiconductor R&D AI infrastructure | |
SaaSMoney Forward operates cloud-based back-office SaaS for Japanese SMEs with total addressable market over 2 trillion yen but only 10% penetration. Company targeting 30% EBITDA margins by FY28 and Rule of 50 achievement. High incremental margins, low churn under 1%, and two-thirds recurring revenue provide stable growth platform. |
Cloud software Back-office automation Recurring revenue Rule of 40 | |
Real EstateNippon Express holds 695 billion yen in real estate assets worth over 60% of enterprise value, with investment real estate at 4.7x book value. Company already executing sale-leasebacks, generating 100 billion yen from Tokyo logistics center with Blackstone. Upwardly revised FY28 real estate sale target from 50 billion to over 150 billion yen. |
Asset monetization Sale-leaseback Logistics real estate Hidden value | |
E-commerceDelivery Hero operates online food and grocery delivery across 74 countries with profitable businesses generating 1.3 billion euro EBITDA run-rate. Company undercharging on delivery fees at 0.8-2% versus DoorDash at 10%, representing 400 million euro EBITDA opportunity from fee optimization. Uber made acquisition offer which company rejected. |
Food delivery Grocery delivery Pricing power M&A target | |
BuybacksActivists in Japan encouraging companies to increase shareholder payout ratios through dividends and buybacks from roughly 20% to 60% or more. Nippon Express launched and completed 50 billion yen share buyback in 2025. Even at higher payout levels, Japanese companies continue accumulating net cash enabling continued engagement. |
Share repurchases Capital returns Payout ratios Shareholder value | |
| 2025 Q4 |
ActivismShareholder activism reached all-time highs in 2025 with 152 campaigns in North America, up 20.6% from 2024. The strategy has evolved from stigmatized to necessity as passive investing increases. Activism internationally has taken off with 119 new campaigns including 76 in Japan. |
Shareholder Activism Proxy Contests Corporate Governance Value Creation Board Representation |
SemiconductorsEbara Corporation is a semiconductor capital equipment powerhouse forming a duopoly in chemical mechanical planarization with Applied Materials. Advanced AI chips demand greater CMP intensity, offering Ebara clear growth runway and market share gains in metal CMP. |
Semiconductor Equipment CMP AI Chips Applied Materials Metal Planarization | |
NuclearKansai Electric Power is Japan's top nuclear operator with 6,580 MW capacity generating 48% of electrical output. Nuclear provides favorable cost structure making KEPCO Japan's most profitable electric utility with significant advantages for data center development. |
Nuclear Power Electric Utilities Japan Data Centers Clean Energy | |
Real EstateKEPCO has over ¥2 trillion in real estate investments including ¥809 billion of noncore real estate at fair value. These assets could be undervalued and worth in excess of ¥1 trillion, representing inefficient capital allocation that depresses ROE. |
Real Estate Assets Asset Sales Capital Efficiency Japan Real Estate Value Unlock | |
| 2025 Q3 |
ActivismActivist activity and success have been flourishing with the Universal Proxy Card increasing campaign success rates from 73% to 88%. The fund expects significant alpha generation from activists like Jeff Smith, Scott Ferguson and Dan Loeb as markets rotate into value investing. |
Shareholder activism Proxy contests Board representation Value creation Corporate governance |
ValueThe fund anticipates a rotation from large cap growth to SMID cap value, assisted by lower interest rates and a more robust M&A environment. Many overlooked SMID cap value stocks present opportunities as growth stocks become overbought. |
Value investing SMID cap Undervalued Market rotation Discount valuation | |
TechnologyMultiple technology investments including BILL Holdings, Workiva, and ViaSat represent opportunities where companies have strong fundamentals but face operational inefficiencies or market misunderstanding that activists can address. |
SaaS Software Technology platforms Operating leverage Rule of 40 | |
| 2025 Q1 |
ActivismThe fund focuses exclusively on activist investing situations, holding positions for the full activist cycle until catalysts are no longer compelling. Activist investors are keeping their heads down and focusing on portfolios despite market volatility, with 2025 already outpacing 2024 with 45 new campaigns versus 36 last year. |
Shareholder Activism Activist Campaigns Board Seats Value Creation Catalyst |
| 2024 Q4 |
Shareholder Activism2024 was a record year for shareholder activism with 128 new initiations in North America. Success rates continue to soar with activists achieving 96% success rate in 2023 and 86% in 2024 versus high 60s historically. Shareholder activism is becoming more mainstream with 40 non-activists launching new campaigns in 2024. |
Activism Proxy Corporate Governance Board Seats Value Creation |
M&AThe fund expects a more robust M&A market under the new administration and FTC head, which is generally a huge secular tailwind for shareholder activism. Several portfolio companies are positioned as potential acquisition targets with strategic buyers showing interest. |
Mergers Acquisitions Strategic Buyers Takeover Premium | |
ValueThe Russell 2000 is trading at 1.7x book value while the S&P 500 trades at its highest ever multiple of 5.22x book value. This signals that more attractive valuations are at the lower end of the capital markets, supporting the fund's SMID cap value focus. |
Valuation Book Value Multiples Undervalued Discount | |
Data CentersCrypto mining facilities share key inputs with hyperscaler data center operations including high-performance computing infrastructure and access to energy. Bitcoin miners are converting capacity to serve hyperscalers like Amazon Web Services, Microsoft Azure, and Google Cloud, generating significantly higher margins. |
Hyperscalers HPC AI Infrastructure Cloud Computing Capacity | |
CryptoBitcoin was up approximately 130% in 2024 with an incoming presidential administration favorable to cryptocurrency. However, many Bitcoin mining companies underperformed due to management issues and failure to capitalize on data center conversion opportunities. |
Bitcoin Mining Cryptocurrency Digital Assets Blockchain |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jan 14, 2026 | Fund Letters | Ken Squire | 6361 JP | Ebara Corporation | Industrials | Semiconductor Equipment | Bull | New York Stock Exchange | Activism, capital allocation, Cmp, Margins, semiconductors | Login |
| Jan 14, 2026 | Fund Letters | Ken Squire | 9503 JP | The Kansai Electric Power Company | Utilities | Electric Utilities | Bull | New York Stock Exchange | Activism, capital returns, Nuclear, Real Estate, utilities | Login |
| Jan 14, 2026 | Fund Letters | Ken Squire | ITGR | Integer Holdings Corporation | Health Care | Medical Devices | Bull | New York Stock Exchange | Activism, CDMO, Medical devices, Takeout, valuation | Login |
| Jan 14, 2026 | Fund Letters | Ken Squire | FUN | Six Flags Entertainment Corporation | Consumer Discretionary | Leisure Facilities | Bull | New York Stock Exchange | Activism, Leisure, Operations, Real Estate, turnaround | Login |
| Jan 14, 2026 | Fund Letters | Ken Squire | WEX | WEX Inc. | Information Technology | Transaction & Payment Processing Services | Bull | New York Stock Exchange | Activism, Governance, Margins, Payments, spinoff | Login |
| Oct 27, 2025 | Fund Letters | Ken Squire | PFGC | Performance Food Group Co. | Consumer Staples | Food Distributors | Bull | NYSE | Activism, antitrust, consolidation, Distribution, synergies | Login |
| Oct 27, 2025 | Fund Letters | Ken Squire | TRIP | TripAdvisor, Inc. | Consumer Discretionary | Interactive Media & Services | Bull | NASDAQ | AI, Governance, Platforms, Travel, valuation | Login |
| Oct 27, 2025 | Fund Letters | Ken Squire | VSAT | Viasat, Inc. | Information Technology | Communications Equipment | Bull | NASDAQ | Defense, growth, Satellites, Spin-offs, valuation | Login |
| Oct 27, 2025 | Fund Letters | Ken Squire | WK | Workiva Inc. | Information Technology | Application Software | Bull | NYSE | Activism, buyout, Governance, profitability, SaaS | Login |
| TICKER | COMMENTARY |
|---|---|
| DHER.DE | Delivery Hero is an online food and grocery delivery business similar to peers DoorDash and Uber Eats. The Company has numerous subsidiaries operating globally across over seventy countries and operates somewhat like a holding company, allowing each of its brands to operate locally. In 2023, the Company generated €253 million of adjusted EBITDA, and consensus estimates projected that the Company would generate approximately €750 million in adjusted EBITDA in 2024. While Delivery Hero operates in 74 countries, only three of those countries (Korea, UAE, Saudi Arabia) make up more than 150% of the Company's total EBITDA. The Company's profitable businesses generated a €1.3 billion EBITDA run-rate in Q4 '23 and this is likely to grow to €1.6 to €1.7 organically in the coming years. There are three straightforward opportunities to create shareholder value here. The first is to simply cut corporate overhead. The Company is still run by its founder who built the company through many acquisitions and is structured as a holding company domiciled in Germany. There is significant overhead in Germany, despite the fact that the underlying businesses are operated independently in their jurisdictions with little synergy. Bringing an operational focus to the Company rather than a venture capital focus could lead to at least €300 million in cost cuts. Second, there are many opportunities to both increase EBITDA and raise capital through the sale of unprofitable businesses. Even though many of these businesses do not make money that does not mean they are not valuable to competitors where they are located who would see significant synergies with their own businesses. For example, it has been reported that the Company had been in talks with Uber and Grab to sell parts of its Southeast Asia foodpanda business. Third, the Company is very likely underearning from its potential. DoorDash, for example, will charge delivery fees of approximately 10% of the order value, whereas Delivery Hero is only charging 0.8% to 2%. An additional 1% fee on existing revenue would lead to €100 million of EBITDA that goes directly to the bottom line. Raising fees to just half of Uber would yield approximately €400 million in EBITDA. Peers Doordash and Uber trade at multiples of 17.5x and 15x 2026 EBITDA, respectively. If Delivery Hero traded at 13x EBITDA, just the increased projected EBITDA and corporate cost cuts could yield a stock price of approximately €80 per share. In addition, sales of unprofitable businesses could add another €7 per share; and an incremental €400 million in EBITDA from fee optimization would add nearly €19 per share at a 13x multiple. The stock has been depressed historically because of its approximate €3 billion of net debt, its lack of liquidity (there is a 30% shareholder) and its somewhat muddled, difficult to comprehend financials. However, these types of things do not dissuade sophisticated investors of Sachem Head's caliber, and the stock responded positively to the news of Sachem Head's position - up 14.5% on the day of announcement. On June 19, 2024, Scott Ferguson, Managing Partner of Sachem Head, joined the Board and the Strategy Committee. On May 13, 2024 it was announced that Uber had agreed to acquire Delivery Hero's foodpanda delivery business in Taiwan for $950 million. On August 11, 2025, the European Commission ordered Prosus to divest its 25% stake in Delivery Hero after it completed its acquisition of competitor Just Eat Takeaway. Then in the second quarter of 2025 when we saw that Prosus was selling its shares to (i) Aspex Management, who was a 15% holder of Delivery Hero and also advocating for a new CEO and (ii) Uber, the potential acquirer of the entire Company, we decided to make our investment at a price approximately 30% below where the stock traded when Sachem Head's involvement was first reported in 2024. Since, then the Company has announced that the CEO will be replaced within a year and Uber made an offer to acquire the Company, which the Company had rejected. We believe Uber is still very interested and that Doordash could also make an offer. |
| 3994.T | Money Forward is a fintech and SaaS platform focused on business and personal finance software. Generating 80% of its revenue from corporate clients, the Company is a leading developer of cloud-based applications for back-office operations in accounting, finance, HR, legal, and information systems, primarily targeting small and medium-sized enterprises (SME) in Japan. For individuals, the Company operates the largest personal finance management and asset management apps in Japan, with over 17 million users and 600,000 paying customers, contributing 11.7% of its FY24 revenue. In addition, the Company also provides financial services to regional financial institutions and operates the, HIRAC FUND, a venture capital firm targeting seed and early-stage startups. The secular opportunity for digitization of back-office processes remains extremely large in Japan. Today, between 30-40% of Japanese SMEs still use spreadsheets and traditional paper-based processes instead of any sort of accounting software. Money Forward estimates that their total addressable market for back-office SaaS for SMEs and midmarket companies to be over ¥2 trillion, but currently only serves about 10% of the potential customer base. This market is expected to continue to grow at 20%+ annually over the next three to five years, and Money Forward is in an excellent position to capture much of the market growth, boasting its status as the most recommended accounting software by Japanese accounting firms. Its accounting software has high incremental margins and high switching costs, resulting in a low overall churn rate under 1% and a stable revenue model with two-thirds of sales coming from recurring revenue. Given this tailwind, as well as the Japanese government's promotion of digital transformation and widespread adoption of Open API by banks, Money Forward is on the cusp of a business transformation characterized by an inflection in profitability. The Company has been growing sales at a 5-year CAGR of about 40% and is nearly break even in EBITDA. By FY28, the Company is targeting over ¥100 billion in net sales, EBITDA margins of +30%, and plans to rein in its SG&A and COGS to sales ratio from its current FY25 projections of 92-97% to 70% or less. On July 24, 2025, ValueAct Capital disclosed in a large shareholding report that they had accumulated a 5.62% position in the Company, making them one of Money Forward's top-five shareholders. ValueAct has a wealth of experience in helping tech companies on the cusp of a transformation towards realizing their full value and enhancing profitability (Recruit Holdings in Japan, Spotify and Salesforce elsewhere, among others). As such, we see two primary levers here for value creation: cost management and enhancing the Company's pricing strategy. Money Forward has never been profitable, as it has been investing in top-line growth, but is now at the point of moving from a hypergrowth company to a sustainable growth company. This should be a company where the Rule of 40+ applies (EBITDA margin plus sales growth equals or exceeds 40). If able to continue growing sales at a 20% CAGR, then its EBITDA margins should be at least 20%, and ValueAct has experience with this as an active shareholder or board member at companies like Spotify and Salesforce. The Company has already laid out ambitious plans to continue growth while substantially reducing its operating leverage, so ValueAct is pushing on an open door here. With Money Forward's 30% EBITDA margin target, the Company could even achieve a Rule of 50 by 2028. ValueAct has an earned reputation as a collaborative and amicable activist who has been uniquely able to work with management teams in Japan despite being a Western hedge fund. There is no reason why this situation should be any different. The Company has a high-quality management team and enviable corporate governance profile with a majority of outside directors (very rare in Japan); 20% ownership by management, the Board, and founding members (16% ownership for CEO Yosuke Tsuji); almost half of its shares owned by foreigners, and many of its leaders are young, ambitious, educated outside of Japan, and have a more global outlook. |
| 9147.T | Nippon Express Holdings (NX) is a global logistics company based in Japan. Its core business can be subdivided into two major categories: freight forwarding and third-party logistics. NX is the dominant freight forwarder in Japan with 25% domestic market share in a notably fragmented industry. This is an asset-light, cash-generative business where scale affords them greater leverage in rate negotiations with transportation companies. In third-party logistics, the company offers warehousing contract logistics. For NX, this is an asset-heavy business, underpinned by a large real estate portfolio of warehouse assets in Japan and abroad. Despite its market-leading position and enviable logistics assets, the company appears quite undervalued, trading at approximately 8x EV/EBITDA on a post-lease basis versus global peers in the mid-teens. In recent years, the Company has tripped over numerous stumbling blocks. Given Japan's negative demographic trends, labor shortages have contributed to a supply gap in logistics specifically and cost inflation more broadly, while manufacturing has been in decline. This has, rightfully, been a major concern of management. Rather than get more proactive on price hikes, never the first choice of Japanese management teams, NX has looked abroad for the next growth engine, going on an acquisition spree to internationalize its business. Some of these include Austria-based cargo-partner in 2024, German medical equipment logistics specialist Simon Hegele in February 2025, and Canadian Metro Supply Chain Group in April 2026 for ¥207 billion ($1.3 billion), the largest acquisition in the Company's history. The problem is that management has largely failed to integrate and reap the benefits of cost savings from any of its acquired assets and have recorded large impairment losses on goodwill. Elliott Investment Management has disclosed a 5% position in the Company. In Japan, Elliott has a penchant for old-world, traditional, strong businesses that are overcapitalized, either in cash or easily monetizable assets like securities, real estate, and other hard assets. NX fits the bill. While the Company doesn't have net cash, it has a treasure trove of valuable real estate assets on the balance sheet. First, it has investment real estate reported at a book value of ¥61.6 billion ($393 million) but a market value of ¥295 billion ($1.9 billion) as reported in the footnote to the Company's filing. Additionally, the Company owns approximately ¥400 billion ($2.6 billion) of warehouse assets at book value, with likely a materially greater market value, even if not close to the 4.7x multiple gap of the investment real estate assets. Additionally, Elliott has extensive experience analyzing Japan real estate assets through its active investments in Mitsui Fudosan (8801-JP), Tokyo Gas (9531-JP) and Kansai Electric Power (9503-JP) to name a few, and we would expect that NX's real estate could be worth even more than its reported market value. As reported, this ¥695 billion ($4.4 billion) in real estate assets are worth more than 60% of the Company's ¥1.1 trillion ($7 billion) enterprise value and, at the end of the day, may even be worth more than the entire enterprise value of the Company. Getting companies to monetize real estate assets in Japan has not been an easy task regardless of how compelling the opportunity appears. But Elliott has had unusual success with this at other portfolio companies. For example, at Tokyo Gas, the Company has sold off certain U.S. shale assets and recently announced the sale of its Tokyo commercial property GINZA gCUBE for ¥30 billion ($191 million). Elliott generated a 94% return on that investment versus 39% for the TOPIX. And there are reasons to believe that Elliott will have even more success here as the Company has already begun to sell off real estate assets. In December 2025, the Company entered into a sale-leaseback agreement for a Tokyo logistics center with Blackstone and generated ¥100 billion ($638 million) from the transfer, and in 2026, NX sold its stake in Osaka Warehouse (a logistics and real estate leasing business) explaining that it is divesting businesses where earnings were heavily real-estate driven. The Company has also upwardly revised its FY28 real estate sale target from ¥50 billion ($319 million) to over ¥150 billion ($956 million). Beyond the balance sheet and operational initiatives around margin expansion Elliott could pursue, NX is also a highly credible candidate for a take-private transaction. The Company has an open shareholder registry, is a well-known brand as the largest player in Japan but is not so iconic and Japan-centric that there would be a natural resistance to sell it. And with a market capitalization of ¥1 trillion ($6.4 billion) it is a perfect size for private equity or a strategic investor. |
| SNPS | Synopsys provides electronic design automation (EDA) software used to design semiconductor chips. This software is essential for modern chip design, making it a mission-critical component of the semiconductor design process for companies such as Nvidia and Advanced Micro Devices (AMD). In addition to EDA, the Company also sells semiconductor intellectual property (IP), which consists of pre-configured, reusable chip components. Additionally, in July 2025, Synopsys acquired Ansys for an approximately $35 billion valuation. Ansys is a leading simulation software company used to predict how chip designs will behave in real world environments, including scenarios such as battery performance and crash and safety simulation. Together, these offerings position Synopsys as the only company with a full suite of chip-to-system software. However, despite this strong strategic positioning, the Company has underperformed its closest peer, Cadence Design Systems, by 14.49, 25.98, and 43.56 percentage points over the past 1-, 3-, and 5-year periods, respectively. As a result, Synopsys trades at a discounted valuation of 28.1x NTM P/E, versus 35.5x for Cadence. This discount is what has likely prompted Elliott to take a multibillion-dollar position in Synopsys and begin engaging with the Company regarding ways to increase sales and improve margins to be more in line with those of peers. There appear to be two primary opportunities here to close the discount. The first is pricing. From a fundamental perspective, Synopsys benefits from both the mission critical nature of its software, and a highly favorable industry structure. The EDA market is effectively a duopoly between Synopsys and Cadence, and customers are extremely reluctant to switch vendors because doing so introduces significant risk and delays in chip development, creating high switching costs and durable customer relationships. At the same time, semiconductor demand is accelerating due to AI growth, which thereby is driving higher semiconductor R&D spending. Specifically, while semiconductor R&D has grown at roughly a 10% CAGR historically, projections suggest this could increase to around 16% in the near term. In fact, companies like Nvidia and AMD have already announced increased R&D investments. Because EDA spending is closely tied to semiconductor R&D budgets, this is a strong tailwind for Synopsys's revenue growth. However, current projections for Synopsys's do not have revenue accelerating commensurately. Given these growth tailwinds and the Company's strong competitive moat, there appears to be an opportunity for Synopsys to improve monetization through leveraging its pricing power to accelerate revenue. The second opportunity here is margin improvement. Operating Margins is a primary driver of the valuation disconnect between Synopsys and Cadence, with Cadence generating margins in the mid-40s compared with Synopsys in the mid-30s. Fundamentally, there is little reason for such similar companies to have such a material gap. In fact, Synopsys' primary differentiator, Ansys, is a higher margin business than the core EDA operations. So, the natural integration of this business should support margin expansion over time. Additionally, Synopsys has acknowledged certain inefficiencies, specifically within the IP segment, that have damaged its bottom line, and improving execution in that area should meaningfully contribute to profitability. More broadly, there are opportunities to streamline R&D, sales and marketing, and to use the Ansys integration process to rationalize costs across the broader organization. Elliott has a reputation among many as a confrontational activist investor. We think that reputation is largely unfounded these days. While their engagements, when necessary, certainly can be confrontational, a large share of their engagements are amicable arrangements, working constructively with management from the start. We think this engagement is likely to be one of those. The biggest indicator being that Elliott did not issue a public letter, or presentation, actions typically associated with more aggressive activist campaigns. Secondly, the Company is moving in the right direction as management has already spoken publicly about potentially pursuing pricing opportunities and is already executing a cost-reduction program stating that it aims to target operating margins in the mid to high 40% range. On May 27, 2026, Synopsys and Elliott entered into a Cooperation agreement pursuant to which the Company agreed to both appoint Jesse Cohn (Managing Partner at Elliott) to the Company's Board, effective June 1, 2026, and to the Corporate Governance and Nominating Committee of the Board. |
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