Interview, Fireside Chat
What’s driving the surge in shareholder activism activity?
- Activist investor activity has returned to pre-pandemic levels, with 12 public campaigns recorded in the week prior to the March 15, 2023 recording; private campaign activity is estimated to be two to three times higher than public counts.
- One out of four S&P 500 companies currently has an activist investor in its shareholder register, while one out of three FTSE 100 companies faces similar pressure.
- Elliot Management raised a record $13.13 billion last year, contributing to increased capital availability for activist strategies.
- The number of "first-timer" and occasional activists is growing, driven by emerging fund managers and experienced professionals (e.g., ex-Elliot PMs) launching their own vehicles.
- Targets are shifting from mid-cap to large-cap companies due to increased capital supply, the need for efficient deployment in larger chunks, and the defensive nature of large corporates in an uncertain GDP environment.
- Activist "swarming" (multiple investors targeting a single company) is increasing, expected to continue throughout 2023 as capital cycles through finite large-cap opportunities.
- Global activism is expanding beyond the U.S., with significant increases in Japan and Europe; the average targeted European company size this year was $40 billion.
- Japanese companies are becoming frequent targets due to strong cash balances, portfolio complexity, and governance structures perceived as less diverse than U.S. boards.
- Strategic demands are evolving: focus has shifted from M&A and sales to operational efficiency, cost reduction, margin improvement, and capital-intensive or low-margin divestitures (spin-offs).
- Inorganic growth is being questioned as a capital allocation strategy, with activists arguing against acquisitions during a period of depressed valuations.
- Record share repurchase activity occurred in 2021 (approx. $1 trillion) and 2022 (exceeding $1 trillion), setting a baseline for current capital return pressures.
- Goldman Sachs predicts M&A activity will recover, at which point demands for strategic sales and alternative evaluations will likely return to the forefront of activist agendas.
- Tech, healthcare, and industrials are currently high-frequency targets, particularly among high-growth firms now prioritizing profitability over expansion.
- Success metrics for activists include convincing management to execute independently, privately containing the dispute to limit public distraction, and preventing the proliferation of multiple competing demands.
- New "universal proxy" rules, effective for the current proxy season, lower barriers to entry for activists by allowing a unified proxy card, enabling easier director targeting and potential entry for non-economic, issue-oriented candidates.
- Companies are advised to "think like an activist" by conducting clinical, public-data-driven reviews of their capital allocation and board composition to preemptively address vulnerabilities.
- Proactive communication regarding performance gaps and strategic timelines is critical; reactive behavior upon activist emergence is cited as a primary driver of vulnerability.