Activist investor takes large stake in Perspecta

Only Jana Partners and its founder-stalwart Barry Rosenstein know the specific intentions behind why the activist hedge fund has taken a 5.9-percent stake in Perspecta that was disclosed Thursday, and neither side is saying much more so far.

Regardless of what those intentions are, shareholders of Perspecta appear to see it as a positive sign as the stock has climbed 16 percent to $24.43 as of 3 p.m. Eastern time Friday.

But we do know what Jana and other activist funds generally do. They buy large amounts of stock in publicly-traded companies perceived as undervalued in the market and/or underperforming, then push those companies to make changes in the name of improving value and performance.

New York City-based Jana’s regulatory filing to reveal its stake in Perspecta says just that: “the shares are undervalued and represent an attractive investment opportunity.”

The math suggests such. In a research note sent to clients Friday, analysts at investment bank Cowen & Co. pointed out that Perspecta’s closing stock price Thursday was valued at 9.1 times EV/EBITDA (enterprise value-to-earnings before interest, taxes, depreciation and amortization) which is nearly 30 percent below other public government services companies.

At least some of that is attributable to what Cowen’s team calls a “perfect storm” for Perspecta. Yes, neither of its two largest recompetes in NASA NEST and Navy NGEN went the way Perspecta wanted. But Perspecta can also point to a pathway for growth and a low recompete rate over the next three years to shift the focus to new business.

For what it’s worth, Perspecta also sounds ready to move on from the NGEN network services effort even as it seeks more clarity through a protest on why the Navy went with Leidos this time around. A decision on that protest is due by Wednesday.

Going forward, Jana will get to have “discussions with members of (Perspecta’s) board of directors and management team regarding maximizing value for shareholders, including discussing industry consolidation, capitalization, capital allocation, operations and board (of directors) composition,” the group said in its regulatory filing.

Sometimes those changes can lead to transactions of some variety. In the government market specifically, Jana’s past investments in the former(s) Computer Sciences Corp. and Harris Corp. give examples what changes there led to. But that is not inevitable. Nothing is in this environment of COVID-19, and pretty much both the macro-economic and federal budget environments being TBD.

Keep in mind that Veritas Capital still owns 14.5 percent of the stock in Perspecta. Veritas held the former Vencore and KeyPoint Government Solutions businesses -- two pieces that along with DXC Technology’s former U.S. public sector business created Perspecta almost exactly two years ago.

The entry of Jana into Perspecta’s shareholder community is not a sudden overnight development. Institutional and individual investors like Jana must make such a disclosure once they successfully acquire at least 5 percent of a public company’s stock.

Jana’s filing to the Securities and Exchange Commission that revealed the stake indicates share purchases in the open market began sometime in the first quarter of this year. The filing begins to trace those buys at around April 13, when Perspecta’s stock closed at $20.02.

Everything written above is just a long way of saying we have to wait and see for what comes out of Jana’s entry into Perspecta’s shareholder community. Jana still needs to request seats on Perspecta’s board of directors in order to make that newfound position have more influence. File this development in the memory bank at least.