Rapid7 Gets Truce With Activist Investor, Adds 3 Board Seats

Rapid7 struck a truce with Jana Partners, agreeing to hand the activist investor three board seats in exchange for widespread cooperation until early next year.

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The Boston vulnerability management vendor inked a cooperation agreement with Jana that will increase Rapid7’s board size from eight to 11, adding former Forescout CEO Wael Mohamed, former Imperva and Gigamon CFO Michael Burns and Jana Director of Research Kevin Galligan. In exchange, Jana will support Rapid7’s board nominees and keep its ownership stake below 15% until January 2026.

“We are confident that adding Wael, Mike and Kevin to our Board will accelerate our ability to execute with greater speed, focus and impact,” Rapid7 Chairman and CEO Corey Thomas said in a statement. “Each brings a wealth of expertise that will help us sharpen our strategy, strengthen execution and drive greater value creation for our shareholders.”

Rapid7’s stock is up $1.41 – or 4.98% – to $29.70 per share in trading late Monday, which is the highest the company’s stock has traded since Feb. 26. Jana disclosed a 13% economic interest in Rapid7 in October, and said issues with operational execution, forecasting, investor communication, corporate governance, board composition and worker retention have led to the company’s stock being undervalued.

But the company’s stock is down 42.3% since the start of 2024 and 78.5% from its all-time high of $138.41 per share in November 2021. Rapid7 currently has a valuation of just $1.88 billion, well below competitors Qualys and Tenable, which are worth $4.76 and $4.37 billion (see: Jana Partners Increases Stake in Rapid7, Eyes Potential Sale).

What Rapid7, Jana Partners Each Get Out of the Deal

In exchange for the three board seats, Jana agreed to vote in favor of all eight of Rapid7’s existing board members for re-election, while Rapid7 agreed not to increase the size of its board above 12 directors. That contrasts with previous agreement between cyber vendors and activist investors, where OneSpan agreed to give Legion Partners two board seats and also have three existing board members exit.

“We are encouraged by the steps Rapid7 is taking to enhance its leadership and execution capabilities,” Jana Managing Partner Scott Ostfeld said in a statement. “We have appreciated our highly constructive dialogue with Rapid7 and look forward to working with management and the Board to capitalize on the significant opportunities ahead and to maximize value for shareholders.”

Mohamed spent two years as CEO of Forescout and more than three years as Trend Micro’s president and COO, and his joining the board brings capabilities around product strategy, digital transformation and operational scaling. Burns spent a year as Imperva’s CFO when Thoma Bravo took the firm private and two years as Gigamon’s CFO, and his addition brings operational discipline and investor credibility.

Galligan has a skillset rooted in value extraction, shareholder return optimization, and performance analysis. Jana has the right to designate a replacement candidate if Galligan resigns from the board, while Rapid7 and Jana will mutually agree on a replacement for Burns if he resigns from the board. The agreement is contingent on Jana retaining at least a 2% net long position in Rapid7’s stock.

Galligan will sit on Rapid7’s compensation committee, while Burns will sit on the company’s audit committee. Having Galligan on the compensation committee will embed Jana’s perspective into areas that directly affect management incentives. The truce between Jana and Rapid7 mandates that the seats belonging to Mohamed, Burns and Galligan get equal consideration for future commitment placements.

The pact also contains a mutual non-disparagement clause, preventing either Rapid7 or Jana from launching critical media campaigns or engaging in adversarial behavior during the cooperation period. If either side breaks the peace, the other is released from its obligations. This is a standard clause in cooperation agreements.

Burns previously had a nominee agreement with Jana that included a $50,000 upfront payment and an additional $150,000 if he was elected in a contested election. Once the cooperation agreement between Rapid7 and Jana was signed, the nominee agreement was terminated and Burns will now get standard board compensation from Rapid7. Galligan is expected to assign his entire board compensation to Jana.