Interview, Fireside Chat
Activism Activity on the Rise
- Activism volumes are projected to remain at record levels and reach the highest point since 2015, recovering in sync with M&A and financing markets despite equity market volatility.
- Non-dedicated and occasional activists are expected to drive over two-thirds of U.S. activism cases this year, indicating a structural shift in the source of activist capital.
- The M&A market is forecast to maintain record strength, making it highly conducive for companies to divest or sell, and potentially facilitating larger take-private transactions.
- Activists are predicted to persist in demanding portfolio evaluation, divestment, and structural simplification, with a "super bloom" of corporate separations expected to continue for some time.
- ESG considerations are expected to become central and increasingly aggressive in campaigns, driven by index and pension funds holding 25 to 30% of many large-cap companies.
- A new generation of millennial or Gen Y investors is anticipated to reshape the landscape by allocating savings to managers with strong social and sustainability priorities, creating an enduring ESG phenomenon.
- Environmental and sustainability components of ESG are forecast to become more critical as activists seek to capitalize on growing ESG capital pools.
- Companies are advised to target the upper quartile or decile of ESG performance to reduce vulnerability, with activist targets selected based on relative peer performance rather than absolute standing.
- Boards are expected to deepen involvement in ESG decision-making, align compensation with ESG strategy, and integrate ESG into broader corporate strategy, capital allocation, and capital expenditures.
- ESG-friendly practices are projected to lower the cost of capital and provide a long-term valuation tailwind, with green bonds and sustainability-linked financing expected to secure more attractive terms.
- Companies must increase nimbleness to adapt to changing conditions and anticipate attacks from a rising number of first-time and occasional activists.
- Large-cap companies with multiple business lines are expected to constantly monitor the gap between sum-of-the-parts and market valuations, potentially re-examining strategic paths if discrepancies are secular.
- Retail investors are anticipated to become increasingly significant and volatile, representing a risk area if co-opted by activist campaigns, with their importance likely to grow.
- Companies are expected to re-evaluate the optimal path between remaining public or going private for the whole company or specific divisions.
- Socially and sustainability-minded practices are forecast to become crucial for recruiting and retaining younger talent.
- Activists are expected to make campaigns entirely around ESG and build support from both existing institutional investors and the growing millennial base.