In a volatile market, not all activist investments work out. In fact, so far in 2023, the pool of dedicated activist funds tracked by Diligent Market Intelligence (DMI) has seen a slim average return of just 3%.

When an activist, like any shareholder, faces a steep loss on an investment, it must decide whether to hold, fold or buy more shares and make new demands. Below, DMI looks at some of the notable cases this year where activists decided to double down and continue fighting.

Starboard at LivePerson

As Starboard Value noted in a May 5 letter to LivePerson, the activist has been invested since December 2021 and publicly disclosed its stake three months later when the stock was at $20.28. But as of October 20, LivePerson trades at just $2.62, leaving the dedicated activist fund headed by Jeff Smith with a total follower return (TFR) of negative 87.1%, according to DMI data.

Rather than exit the position, Starboard reignited a proxy contest at the AI chatbot company in May, nominating three director candidates. In the run up to the campaign, the activist opted to cut its equity stake from 9.4% to 3.1% at prices between $11 and $4 per share. Instead, Starboard loaded up on convertible debt worth roughly $21.5 million, according to its most recent quarterly 13F disclosures.

Starboard declined to comment when contacted by DMI. However, a source close to the fund noted that the relatively small equity stake means the $8-billion activist had little to lose financially by retaining the position, and much to gain from making a stand against what it saw as corporate mismanagement.

Progress has been made, with Starboard withdrawing its nominations on August 8 after LivePerson announced the departure of CEO Robert LoCascio, who the activist had accused of poor leadership and “immense” value destruction.

LivePerson’s stock has fallen by 34% since Starboard pulled its nominations but a big convertible equity position would likely give Starboard downside protection if the situation were to worsen with bonds repaid at par in the event of a sale, the source explained.

Legion Partners at OneSpan

Legion Partners Asset Management reached a settlement with OneSpan in May 2021, winning two board seats at the cybersecurity company and the removal of three incumbent directors, a campaign that Legion’s managing partner Christopher Kiper described as one of its most successful.

Yet, OneSpan’s stock has fallen from around $26 per share at the time of the settlement, to currently trade at just over $9, leaving Legion to suffer a roughly 50% decline in the value of its investment.

Los Angeles-based Legion, however, still sees value in the stock, and on August 14 launched a new campaign, calling on management to field takeover interest and implement a plan to boost profits and shareholder returns.

“After 18 months things did not materialize in a way we hoped,” said Kiper in an interview with DMI, noting that the standstill period agreed on as part of the 2021 settlement expired over the summer.

Legion’s campaign focuses on the company’s stated plans to pivot away from a growth strategy and towards a focus on cash flow optimization and capital returns. While Legion supports the move, it argues management is not moving fast enough and failing to recognize the “magnitude of change required to expeditiously achieve fair value in the public markets, or to extract the highest possible price from a near-term sale of the company,” Legion stated.

“Growth is more risky than cash flow,” Kiper explained. The activist argues that OneSpan has the potential to generate $70 million to $80 million in adjusted EBITDA and an implied valuation per share of roughly $19 to $26, or an 80% to 140% upside from its price on August 14.

So far, the investment remains a work in progress as the stock has fallen around 21% since Legion initiated its new campaign.

Cannell Capital at Sportsman’s Warehouse

Cannell has been in Sportsman’s Warehouse since February 2019, when the stock was at $5.80 per share and until earlier this year was a passive investor. But the Wyoming-based fund switched to an activist position, filing a 13D this June after the stock had fallen below its initial investment price. A month later, it called on the board of directors to step down.

In September, the company reported a second-quarter loss, sending the stock price to a low of $2.98 per share.

Despite sitting on substantial losses, Carlo Cannell, founder of Cannell Capital, told DMI in an interview that continuing to hold the stock and fight for change has value beyond the company’s share price.

“Part of our motivation for filing a 13D at Sportsman was not entirely motivated by economics, and I regret to say some of it was personal,” said Cannell. He said he had nominated several director candidates, who flew out to meet the company, with one apparently being acceptable to management.

The company instead announced the appointment of a new director, allegedly without consulting Cannell. In September, management amended the company’s bylaws so that special meetings of stockholders can only be called by the board.

“On which planet do inhabitants who have bought a mere 0.15% of a company think it is right and acceptable to box out the overwhelming majority’s opinion on what they own?” Cannell asked in a September 18 letter to the board, highlighting low stock ownership among sitting directors.

Cannell’s campaign at Sportsman’s Warehouse has seen the stock gain around 44% in value since the letter was published. But with Cannell still looking at a 10.7% loss on its initial investment, more work will be needed before it can turn a profit.