An activist investor is an individual or institutional investor who attempts to get control within the company by gaining seats on the company’s board of directors. Activist investors are looking to make important changes to the target company and unlock the hidden values.
They generally seek companies that describe a structural flaw within the management and look to add value by influencing the current management decision with the new management.
Individual activist investors are said to be very wealthy and influential. They have the ability to leverage their Capital to buy a large number of shares to gain enough voting rights on the board of directors. They focus to influence the strategic direction of the target company.
The investors are well known within the finance Industry and make structural changes to the company’s strategy. For instance, if an individual does not understand management that is, allocating capital properly, they use their influence over the board of directors to push for the different capital allocation.
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An investor in the form of private Equity Funds uses many different strategies, but it will manipulate a public company with the intention of taking it private. The structure of a private equity firm incorporated limited partners who gain a significant amount of the fund and enjoy limited liability. Private equity firms use capital from several investors who are willing to invest a large amount of capital for prolonged periods.
The investments of private equity firms have many different situations are as follows:
Purchasing a company as a whole with the intention of reorganizing its Capital Structure to augment its value and exiting the investment by reselling the company or conducting an IPO (initial public Offering).
Seeking companies and business that are distressed, especially when the company is on the verge of Bankruptcy.
Rendering capital to startups or entrepreneurs for helping the entrepreneurs grow their venture and receiving the equity stake of the seed investment.
Investors in the form of hedge fund can manipulate a public company in different ways. Hedge funds can take the approach of an individual investor to act like private equity firm. Investments are not easily converted into cash and they are usually locked for at least one year.