Who is Franck Tuil, as Sparta Capital quietly build a stake in ailing boot manufacturer Dr Martens?

Sparta Capital, an activist fund manager led by former Elliot Management Group member Franck Tuil, has been actively acquiring a significant stake in the struggling bootmaker, Dr Martens. According to reports by Sky News, Sparta Capital has invested "tens of millions of pounds" in stock from the London-listed footwear brand. As part of its investment strategy, Sparta has engaged in talks with the board of Dr Martens to offer support and assistance as the brand faces challenges from several financial setbacks.

The recent stock acquisitions have elevated Sparta Capital to become one of the top 10 shareholders in Dr Martens. The brand's value has been on a decline since its initial public offering (IPO) about two and a half years ago. The IPO price was much higher than the current stock price, and Dr Martens' shares have experienced a significant drop of 62% since its launch on the London market in January 2021.

Dr Martens has been grappling with various issues affecting its business, including supply chain bottlenecks in its Los Angeles warehouse, which have negatively impacted its American wholesale channel since December. The supply chain challenges resulted in an underwhelming financial update in April, with fourth-quarter revenues showing only a six per cent increase.

In response to its financial performance, the bootmaker launched a share buyback program of up to £50 million to retain earnings, particularly after experiencing a 26% decline in pretax profits.

A spokesperson from Dr Martens confirmed that they regularly engage with their shareholders, including Sparta Capital, as part of their investor relations activities. The company met with Sparta as part of the roadshow after the full-year results were announced.

Who is Franck Tuil?

Sparta Capital was formed in 2021 by former Elliot Management Corp investor Frank Tuil after leaving Elliot Management Corp in 2020 after more than two decades at the London hedge fund management group. 

Known for his significant contributions to Elliott Management Corporation's expansion into Europe; he played a key role in driving Elliott's activist campaigns against large European companies, including German chemicals group Bayer and French spirits maker Pernod Ricard. Throughout his tenure at Elliott, Tuil steadily rose through the ranks, ultimately becoming a loyal and trusted lieutenant to Gordon Singer, the head of the firm's London office and son of founder Paul Singer.

Under the leadership of Tuil, Elliott successfully pursued strategies that led to measures aimed at enriching shareholders, often challenging companies to implement changes initiated by the hedge fund. He was instrumental in Elliott's ventures into countries like Germany and France, where shareholder activism from outsiders is traditionally met with resistance.

Sports fans may be familiar with the name, as Tuil played a pivotal role in Elliott's takeover of AC Milan, orchestrating a €300m loan to Li Yonghong, a Chinese businessman, resulting in Elliott gaining control of the football club. Additionally, he actively engaged in campaigns for better governance and higher margins at Pernod Ricard and advocated for the split of the German conglomerate Bayer following its ill-fated merger with Monsanto.

While highly regarded for his intelligence and professionalism in the industry, he is also known for maintaining an intense focus on his portfolio trades, which can sometimes be perceived as socially awkward, according to the Financial Times.

What is an activist investor?

According to Investopedia, an activist investor, typically a specialized hedge fund, buys a significant minority stake in a publicly traded company in order to change how it is run.

The activist investor's goals may be as modest as advising company management or as ambitious as forcing the sale of the company, divestitures or restructuring, or replacing the board of directors.

Unlike private equity firms that buy and restructure companies in order to profit when they are resold, activist investors seldom acquire full or majority stakes. Instead, they use public communications and private discussions to win over other shareholders and company insiders. 

When such efforts fail, an activist investor may pursue a proxy contest to elect new directors in order to force the company to meet their demands.