Clearwater played stupid games… and now, activist investors are handing them stupid prizes.

Clearwater Analytics is trending after news broke that Starboard Value “quietly” grabbed nearly 5% of the company and, in classic activist investor fashion, would now like to have a conversation with the manager.

According to reports (read: Starboard’s mouth) the hedge fund believes Clearwater isn’t cheap because the business is broken. It’s cheap because the market is sitting there with its arms crossed, waiting to see whether the company’s recent shopping spree actually turns into earnings… or just a growing list of things management promises to “integrate over time.”

If you need a quick refresher: Clearwater provides investment accounting and reporting software used by insurers, asset managers, hedge funds, and banks. It’s not flashy, it’s not sexy, and no one tweets about it. But if it stops working, phones start ringing immediately.

And yet, the stock is down roughly 20% this year. Not because customers are fleeing… but because investors are staring at a growing pile of recent deals (Enfusion, Bistro, Beacon) and wondering how exactly management plans to digest all of that without choking on leverage or execution risk.

That’s when the “suits” at Starboard saw their opportunity and knocked on the door.

(Source: CNBC)

From the activist’s point of view, Clearwater has more value hiding under the hood than the stock price suggests, and the fastest way to surface it starts with a simple question: if credible buyers are already sniffing around (and apparently they are) why not actually test the market? 

That’s why Starboard wants a real sales process with independent advisers. Not the usual “we had a few interesting conversations” line companies love to use right before doing nothing.

Of course, timing plays a YUGE role in all of this, and it couldn’t be better for an activist to show up. Private equity firms have reportedly been circling, and Clearwater checks just about every box that makes both financial sponsors and potential buyers lean forward: sticky clients that don’t churn, recurring revenue that shows up quarter after quarter, and mission-critical software that’s a nightmare to rip out once it’s installed… all any private equity company could ever want for Christmas.

And if no deal ever comes together, Starboard isn’t exactly out of moves. That’s when the other version of the conversation starts… the one where costs get scrutinized, headcount suddenly becomes a topic, and management is pushed to make the business throw off better revenue and margins. It’s not exactly a mystery; they’ve run this same routine before at places like Olive Garden and Salesforce.

All of this leaves Clearwater, which went public in 2021 and now carries a roughly $6.4B market cap, sitting right in the danger zone where activists get interested and management suddenly has a lot more meetings on their calendar.

So far, nothing has spilled into public view. We don’t have any unhinged angry letters. And unfortunately for all of us watching on the sidelines, we haven’t gotten to see any Twitter beef playout… yet.

But when word spreads that Starboard owns 5%, those conversations usually don’t end with a polite thank-you.

They end with expectations… and now the clock’s ticking.

At the time of publishing this article, Stocks.News doesn’t hold positions in companies mentioned in the article.