Activist FrontFour Capital’s New Targets

Activist hedge fund FrontFour Capital Group, led by Stephen Loukas, David A. Lorber, and Zachary George, has boosted its activist position in North American Energy Partners Inc. (USA) (NYSE:NOA). The fund revealed holding 3.24 million shares of the company, up from around 2.57  million shares revealed in its latest 13F filing. Moreover, in another filing, Discovery Group I reported raising its activist stake in Exa Corp (NASDAQ:EXA) to 7% from 6.8%.

David Lorber FrontFour Capital

FrontFour Capital, following the increase of its stake, owns 9.2% of North American Energy Partners Inc. (USA) (NYSE:NOA)’s common stock. Since the stake is activist, the investor added that it has engaged in discussions with the company’s board and senior management regarding the value of the company. However, FrontFour added that despite the company undertook some measures, such as fleet rationalization or balance sheet deleveraging, its stock still trades below its intrinsic value. Therefore, the fund intends to further pursue the management to take more steps to maximize the shareholder value of North American Energy Partners.

North American Energy Partners Inc. (USA) (NYSE:NOA) is a small-cap comapny engaged in heavy construction, mining and pipeline installation services, based in Canada and focused on oil sands, industrial construction and piple construction markets. Since FrontFour added the company to its equity portfolio, which took place in the last quarter of 2012, the stock almost doubled. Now, with FrontFour taking more serios steps to maximize the shareholder value, the stock might go up even higher.

Despite North American Energy Partners Inc. (USA) (NYSE:NOA) gaining around 8% since the beginning of the year, it has still underperformed other peers from the Oil & Gas Services industry. It has also underperformed the industry average return of around 17%.

However, another activist investor,  Phil Falcone of Harbinger has closed its position in North American Energy earlier in June, previously holding over 7.0 million shares of the company. Nevertheless, many investors among those that we track are bullish on the company, including Jim Simons‘ Renaissance Technologies, which initiated a stake during the second quarter, holding around 388,400 shares. J. Carlo Cannell‘s Cannell Capital upped its stake by 14% during the same period to 1.87 million shares.

Discovery Group I’s position in Exa Corp (NASDAQ:EXA) has been raised to 972,400 shares, from 935,700 shares. In addition, the fund revealed a letter send to the company’s board where it explained its intents to convince the board to take steps to maximize shareholder value, including a sale of the company. Discovery added that it engaged in many discussions and meetings with the company’s management, but it is concerned that the Board is not acting in the best interest of the investors.

The investor also stated that Exa Corp (NASDAQ:EXA) is significantly undervalued among other micro-cap companies, and does not benefit from a lot of interest from other institutional investors, despite the fact that the company is in a strong competitive position and has a good revenue model and long-term opportunities in the application software industry. The stock of Exa Corp (NASDAQ:EXA) declined by over 12%, while the whole application software industry lost around 5% since the beginning of the year.  However, the company has a solid return on equity, which amounts to 14.00, while the industry average stands at 13.90.

Therefore, Discovery Group added that several companies might be interested in a strategic acquisition of Exa Corp (NASDAQ:EXA). Among the companies are leaders in the industry such as Autodesk, or Siemens, who have been active in the M&A market of late. The industry has also been going through a consolidation period, which affected many companies with similar models to Exa’s.

Disclosure: none