By Jamie McLean
Investor activism is where an individual or group “purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board to effect a significant change within the company” (Investopedia, 2019). Normally this will begin in the form of a minority stake in the company, often between 1% and 10% of a target’s shares. Investor activism usually occurs when an activist has a different view than management on how to maximise shareholder value, and therefore they attempt to coerce the company into adopting their strategy.
How do they do this?
Activists employ a variety of tactics, including open letters to the board and fellow investors (10X EBITDA, 2020), proxy fights incorporate votes, nominating directors to gain control of the board, and even litigation to challenge board decisions. In one-third of cases, campaigns are M&A-driven, with around 40% of these being pushed for the target company to divest parts or all of their business (Lazard, 2019).
Who are the Main Players?
The most prominent activist investor globally is Elliott Management, with $14.7bn invested in current activist positions and 22 new campaigns in 2018 spanning across 9 countries.
Other notable groups include ValueAct, with $12.6bn in market value of current activist positions, Cevian, with $11.2bn, and Trian, with $10.1bn.
What is the Trend?
In short, there has been a growing number of attempts, successes, and money invested in activist campaigns over the past few years, with 2018 being the most significant year yet.
According to Activist Insight, FactSet and public filings at 12/31/2018, 226 companies were targets of activist investors in 2018, compared with 188 in 2017. The amount of capital deployed behind campaigns in 2018 reached $65bn, up from $62.4bn in the previous year. This meant that a new record of 161 board seats were won by activists in 2018, up from 103 in 2017 and an average since 2013 of 111.
Not only this, but an increasing number of investors used activism as a tactic for the first time.
Lazard’s Review of Shareholder Activism nicely depicts this below, with there being a total of 131 investors engaging in activism in 2018, of which 40 were “First Timers”.