Episode Summary
Executive Summary: This podcast episode features an interview with Klaus Rorik and Florian Schubauer, founders of Active Ownership, an activist investment firm focused on small to mid-cap companies in Europe. They discuss their unique approach combining value investing with private equity-style value creation, the evolving shareholder culture in Europe, and their notable campaign with Stada. The conversation covers their sourcing process, board engagement, and the structural changes making European markets ripe for activism.
Main Topics: Active Ownership's Investment Strategy (Priority: 5/5): Combines value investing (margin of safety) with private equity-style operational improvements to increase company value. Activism is a tactic, not a strategy. European Shareholder Culture Evolution (Priority: 4/5): Europe is shifting from cross-shareholdings to more dispersed ownership, creating agency issues and opportunities for active engagement, similar to the US in the 1980s. Sourcing and Research Process (Priority: 4/5): Ideas come from management teams seeking support (30-40%) and a library of ~100 thoroughly analyzed companies. Extensive use of industry experts and site visits. The Stada Campaign (Priority: 5/5): A detailed case study of a successful activist campaign against a German generics company, involving a proxy fight, legal battles, and eventual take-private at a substantial premium. Managing Liquidity and Investor Alignment (Priority: 3/5): Fund structure uses long lockups and commitment capital to enable illiquid positions. Relies on family offices and endowments, with co-investment options and disaster protection put options. Challenges of Labor Representation (Priority: 2/5): In German companies with employee board representation, they find transparency and respect are effective, viewing workers' councils as partners.
Key Arguments: Active ownership's two pillars are value investing margin of safety and private equity-style value creation plans, enabling returns independent of market direction. European capital markets are underdeveloped in shareholder culture, creating a large opportunity set for activist investors, especially small caps. Management teams often welcome active shareholders because they can help push through necessary changes blocked by inefficient boards. The Stada case demonstrates the power of combining deep industry analysis with legal and tactical persistence to unlock value in entrenched companies. MiFID II regulation and passive investing growth are reducing small-cap coverage, increasing informational inefficiencies that active investors like Active Ownership can exploit.
Data Points: Active Ownership's five-year return: ~30% per year - Beating the small-cap Europe ex-UK benchmark by a factor of almost three since inception Sourcing from management teams: 30-40% - Percentage of investment ideas that come from management teams wanting to work with Active Ownership Number of investment cases in library: ~100 - Fully analyzed investment cases with value increase plans, monitored regularly Stada investment return: From ~€30 to €66.25 per share - Return achieved in 18 months via a take-private offer from Bain and BC Partners Number of companies valued above 10x sales (2018 vs 2021): 6 vs 1,100+ - Illustrating valuation inflation in the market, though many are loss-making Team size growth: From 4 to 15 people - From end of first year to current (as of podcast recording)
Pivotal Quotes: "What we have is we have an activist toolbox. It's more a tactic which we seldom use, but we are able to use in order to make a company pursue a value increase plan which it otherwise wouldn't do." — Klaus Rorik: Explaining that activism is not their core strategy but a contingency tool. "I like to compare this to the 1980s in the US. Huge chance, huge opportunity set, and underdeveloped capital markets and shareholder culture." — Florian Schubauer: Describing the current state of European capital markets as ripe for activism. "We are not investing in markets, we are investing in special situations. We always have a unique situation where we can drive the value creation in our company." — Florian Schubauer: Emphasizing the bottom-up, situation-specific nature of their investment approach.
Implications: For investors and professionals, the episode highlights that Europe's small-cap space remains inefficient and ripe for active strategies combining deep research, industry expertise, and board engagement. The Stada case demonstrates that even well-defended companies can be transformed with persistence and alignment of long-term capital. This suggests a growing relevance for activist approaches in European markets.
About Value Investing with Legends
Value investing is more than an investment strategy — it's a fundamental way of thinking about finance. Value investing was developed in the 1920s at Columbia Business School by professors Benjamin Graham and David Dodd, MS '21. The authors of the classic text, Security Analysis, Graham and Dodd were the very pioneers of their field and their security analysis principles provided the first rational basis for investment decisions. Despite the vast and volatile changes in the economy and securities markets during the last several decades, value investing has proven to be the most successful money management strategy ever developed. Value investors' success over the second half of the twentieth century proved not only the validity of the value approach, but its preeminence over even the most widely taught and practiced modern investment theory, which was developed in the 1950s and '60s and remains dominant even today. Our mission today is to promote the study and practice of Graham & Dodd's original investing principles and to improve investing with world-class education, research, and practitioner-academic dialogue. In this podcast you will hear from some of the world's greatest investors, their views on the investment management industry, how they developed their investment process and how they see the field changing over time.