Even with a clear valuation case, the reality of implementing change involves significant interpersonal wrangling and complexities not visible on a balance sheet. The 'brain pain' of execution far exceeds the initial analytical work, highlighting the difficulty of turning a thesis into reality.
A prior, casual social relationship with Avation's chairman meant the activist's arrival wasn't a 'cold call.' This established rapport allowed for immediate, constructive dialogue, bypassing the initial hostility common in activist situations and accelerating strategic alignment from the outset.
When a company's stock trades at a significant discount to tangible assets, the market signals that every new dollar invested is immediately devalued. The correct capital allocation is returning capital to shareholders via buybacks or dividends, not pursuing growth projects that the market refuses to credit.
The activist purchased a large, illiquid 20% stake from a motivated seller at a 25% discount to the last traded price. This price itself was far below tangible book value. This 'discount on a discount' front-loads returns and builds in a significant margin of safety before any operational improvements are made.
The activist investor initiated the purchase of a 20% stake in Avation not through traditional brokers, but by simply posting on Twitter asking for an introduction to the selling hedge fund. This unconventional approach led to a direct call from the fund's manager within 24 hours, proving social media's power in sourcing illiquid deals.
The decision to exit was driven by a change in the investment's risk/reward profile. A 25% increase in underlying aircraft values, combined with a stock price rally from 80p to ~150p, removed the initial deep-value margin of safety, prompting an exit even though the ultimate goal of a full company sale wasn't achieved.