Envestnet labors to fend off escalating revolt by major shareholder

After closing 2022 with an open letter detailing its disappointment with the fintech firm's performance, one of Envestnet's largest shareholders is ratcheting up its bid to force change at the wealth management technology company, offering up four new candidates for its board of directors.

Impactive Capital

Activist investment management firm Impactive Capital named its candidates earlier this week along with restated grievances about the company first aired last fall, including "persistent underperformance, poor governance and lack of shareholder alignment," according to a news release. Impactive Capital owns approximately 7.5% of the outstanding common shares of Envestnet, making it one of the firm's largest shareholders.

The statement said that Impactive firmly believes in Envestnet's business and future potential. But the shareholder pointed out that over the past five years, Envestnet has underperformed the S&P 500 by 61% and delivered a total return of just 6%, compared to more than 113% by its peer group.

Impactive asserts that its moves are having a positive impact on Envestnet shares. "In the 32 trading days since Impactive made its' November 2022 letter to the board public, Envestnet's stock has returned 11%, almost double the company's cumulative return during the trailing five-year period, which Impactive contends underscores shareholders' profound dissatisfaction with the company's current direction and their desire for change," said the Impactive statement released this week.

But there's much more work to be done, the shareholder said. Impactive accused Envestnet of making decisions that resulted in "shareholder value destruction." Those decisions include dilutive capital allocation and a lack of focus on return on investment; poor operating performance; lack of shareholder alignment; and a lack of commitment to good governance. With the latter, Impactive said that Envestnet's current board had refused to engage with the shareholder in response to its request for a board seat.

"Over the past 18 months, during which Impactive has sought to productively engage with the board, we steadfastly expressed our view that Envestnet is a high-quality business with substantial opportunity for value creation, particularly given its dominant market position," Lauren Taylor Wolfe, co-founder and managing partner of Impactive, said in a statement. "Unfortunately, our efforts to collaborate privately were rebuffed, leaving us with no choice but to publicly express why change is required at Envestnet."

Envestnet officials said in an emailed statement that the current board is committed to acting in the best interests of the company and all shareholders.

"The board will present its recommendation regarding director nominees in the company's proxy materials. In the meantime, the company continues to focus on achieving its strategic goals and creating value for shareholders," the statement said.

Impactive nominated the following people to Envestnet's board: Taylor Wolfe; former UBS Group Global Wealth Management Co-President Thomas Naratil; Lane Holdings Chair Wendy E. Lane; and Michael J. Stanton, a former executive vice president and chief financial officer for Diligent Corporation.

In its November letter, Impactive said that this was the first time it felt compelled to make public its communications with Envestnet's board. Envestnet's stock has underperformed in the years since current board chair James Fox joined the board in 2015, Impactive said.

"We cannot emphasize enough how difficult it is for a software company with mostly fixed costs, greater than 95% revenue retention, and revenues linked to the market, to underperform the market by ~65% over five years," Impactive wrote in the letter.

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