Michael Thompson, The Appleton Times
McLEAN, Va. — In a move that could signal a new chapter for the struggling software company Appian Corporation, activist investor Fivespan Partners LP has disclosed a significant stake in the firm, aiming to collaborate with management to boost its undervalued shares. On January 27, Fivespan announced it had acquired a 6.16% position in Appian, a provider of business process management solutions, and plans to engage with executives on operations, strategy, and governance matters, including the potential addition of a Fivespan representative to the board.
Appian, founded in 1999 by Matthew Calkins, Robert Kramer, Marc Wilson, and Michael Beckley, specializes in business process management software, case management tools, mobile application development, and platform-as-a-service offerings. Headquartered in McLean, Virginia, the company serves major enterprises, including large banks, telecommunications firms, and even the U.S. Department of Defense, by helping them modernize outdated backend technology stacks. According to company filings, Appian's software is deeply integrated into clients' systems, leading to exceptionally high switching costs and a gross customer retention rate of about 99%.
Despite these strengths, Appian's stock has plummeted 89% over the past five years, trading at roughly two times sales and three times gross profit—valuations that represent more than a 50% discount compared to peers in the sector. The company has achieved consistent mid-teens revenue growth, primarily from expanding business with existing clients, in a market estimated at $90 billion where penetration remains at just 10%. Fivespan's involvement comes amid this backdrop, with the firm positioning itself as a partner rather than an adversary.
Fivespan Partners, a San Francisco-based investment firm launched in October 2023 by Dylan Haggart and Sarah Coyne, both former partners at ValueAct Capital, emphasizes a collaborative approach to activism. With 80% of its investment team hailing from ValueAct, Fivespan draws on that firm's reputation for constructive engagement. The name Fivespan is inspired by a unique five-stone arched bridge in Haggart's hometown, symbolizing the firm's self-view as "a bridge between the market and companies," according to a recent analysis by Ken Squire, founder of 13D Monitor, an institutional research service on shareholder activism.
Haggart brings substantial experience to the table, having served as a director on the boards of Seagate Technology since 2018 and Fiserv from 2022 to 2024. During his tenure at those companies, shareholders saw returns of 205.25% and 64.68%, respectively, far outpacing the Russell 2000 index's 46.12% and 4.98% over the same periods, Squire noted. Fivespan targets high-quality, idiosyncratic businesses with strong strategic assets, holding investments for three to five years in a drawdown structure, typically managing six to eight positions with stakes ranging from $100 million to $300 million each.
The firm prefers "behind the scenes," amicable activism and avoids advocating for outright sales as a primary strategy, though many campaigns could culminate in a transaction if it maximizes value. In Appian's case, any board changes or strategic shifts would require the invitation of the current board, given the company's controlled status. CEO and Chairman Matthew Calkins holds about 39% of the voting power, with two other founders on the nine-person board and several directors being former Appian employees or close associates of Calkins.
Squire highlighted Haggart's track record with controlled companies during his ValueAct days, including successful engagements with KKR and The New York Times, the latter of which remains in Fivespan's portfolio. "Going back to his ValueAct days, Dylan Haggart has had a lot of experience and success working with controlled companies," Squire wrote in his commentary for CNBC.
Fivespan identifies three key issues contributing to Appian's market discount. First, a widespread misconception about the company's exposure to artificial intelligence disruption. Often lumped in with automation firms vulnerable to AI, such as those in customer service or chatbots, Appian's focus is on complex backend processes, which Squire described as "entirely different." He added, "Anyone who looks at Appian's financials can recognize the fallacy of this bear case, as the company's growth and retention metrics look nothing like those of companies with actual AI risk."
The founders—Calkins, Beckley, Kramer, and Wilson—are described as tech-oriented college friends who bootstrapped the company from a garage, with little inclination for market communications. Appian lacks a dedicated investor relations professional, exacerbating the communication gap. Fivespan could help by refining the narrative and potentially filling this role, Squire suggested.
Second, Appian has historically prioritized revenue growth over profitability, resulting in free cash flow margins in the low single digits, compared to over 30% at competitor Pegasystems Inc. (Pega). With its recurring, sticky revenue model, Appian can pursue growth while expanding margins through mindful cost management on incremental revenue, without resorting to layoffs. "While margins won't jump overnight, they should improve steadily each quarter as costs continue to grow more slowly than revenue," Squire observed, pointing to peers like Pega and ServiceNow as examples.
Third, and perhaps most critically, is capital allocation. As margins improve, Appian is poised to generate substantial free cash flow, making disciplined spending essential. The company has a mixed history in this area, but an influx of cash from an ongoing legal battle could test its strategy. In 2020, Appian sued Pega for corporate espionage, securing a $2.036 billion verdict in 2022. The Virginia Court of Appeals overturned it in 2024, remanding for a new trial. However, Appian insured part of the award for $500 million, ensuring at least that amount regardless of the final outcome—more than 25% of the company's current market capitalization.
"If it's awarded more than $500 million, it is theirs to keep and the insurance company is off the hook," Squire explained. "So, it is just a matter of time before Appian receives at least $500 million." Haggart's expertise in advising on cash deployment, honed at Seagate and elsewhere, could prove invaluable here. Squire emphasized that the best activism often involves an outsider like Haggart guiding capital decisions while management focuses on operations.
Appian has not publicly commented on Fivespan's stake or proposed engagements, but the activist's approach aligns with a preference for collaboration over confrontation. In its other three campaigns, Fivespan has demonstrated a "behind the scenes" style, which is particularly relevant given Appian's structure. "We think Appian and Fivespan are rowing in the same direction," Squire wrote. "Moreover, we think the company would benefit greatly from the addition of a minority shareholder representative on the board, like Haggart or another Fivespan executive."
One advantage of such representation, according to Squire, is access to the firm's resources, including its team of analysts, especially for pivotal decisions like those involving the lawsuit proceeds. He described the campaign as "activist-lite," noting that Haggart's effectiveness hinges on the founder's cooperation. "We expect he will proceed with that in mind."
The broader implications for Appian could be transformative. If Fivespan's involvement leads to clearer messaging on AI resilience, margin expansion, and savvy capital use, the stock's deep discount might narrow, attracting more institutional interest. For the software industry, this underscores how activist investors are increasingly targeting undervalued players in niche markets like business process automation, even those with strong fundamentals overshadowed by market misperceptions.
Looking ahead, Fivespan plans to continue meetings with Appian management, though no timeline for board discussions has been set. Investors will watch closely as the espionage retrial unfolds, potentially injecting significant capital into a company already benefiting from loyal customers and untapped market potential. As Squire put it, this engagement offers "two paths to shareholder value"—operational improvements or even a sale—though the firm stresses the former as its focus.
For now, Appian's story reflects a classic tale in tech: innovative roots clashing with Wall Street's demands. With Fivespan at the table, the coming months could redefine how this Virginia-based firm navigates its challenges and opportunities.