Activist shareholders, emboldened by recent successes, have shattered previous records in 2018 by targeting the largest number of companies ever, deploying the most capital and winning a greater number of board seats than ever before.
The record investor actions were driven by a greater number of investors adopting an activist playbook, the rapid rise of the strategy in Europe and Asia and a buoyant deals market, said Jim Rossman, the head of shareholder advisory at Lazard, which compiled the data.
He added that an increasing number of asset managers were willing to throw their support behind hedge funds clamouring for change.
“Activists have been able to act with a bit more confidence because of the support they’re getting from the investor community,” said Mr Rossman.
Activists such as Elliott Management, Third Point, Starboard Value, Trian Partners and ValueAct buy up stakes in companies in order to lobby for change that they hope will improve the target’s share price.
The strategy, once derided as seeking only short-term gains at the expense of long-term shareholder interests, has become mainstream as hedge funds pursue higher returns for their fees and their campaigns become more sophisticated and more prevalent while targeting larger companies and in more regions of the world.
A record 226 companies faced activist campaigns last year, up from 188 in 2017, and the amount of capital invested in the targets was up to a high of $65bn.
Some of the biggest campaigns of 2018 included Third Point’s proxy fight with Campbell Soup, Pershing Square and Third Point’s efforts to drive United Technologies to split into three separate businesses, and Elliott’s nascent campaign to push Pernod Ricard to improve its profit margins.
“Activism levels continue to increase, driven by attempts to force sales to financial sponsors as well as an uptick in European campaigns,” said Bill Anderson, global head of Evercore’s activism and raid defence business. “Over 20 per cent of the S&P 500 have a leading activist in their stock, so 2019 should be another year of heightened activist pressure.”
The most common objectives for activist campaigns last year were a sale of the company, a boost in an acquisition offer and urging a break-up or divestiture, according to Lazard’s research.
One-third of all campaigns last year were in Europe and Asia Pacific, the highest levels ever initiated in those regions.
There was one-fifth increase in the number of investors who launched campaigns from the previous year, to 131, and one-third rise in the number of investors who were deploying an activist strategy for the first time, to make for a total of 40 “first-timers”.
Asset managers, including T Rowe Price, Janus Henderson and GBL, are taking a more active role in major campaigns, sharing their views with company management and other shareholders.
“In general the climate among traditional asset managers is they’re more willing to take sides and speak up, and that’s been very helpful for the activists,” said Mr Rossman. “A lot of that is happening behind the scenes, but we’re working on these campaigns and we’re seeing the increase.”
Elliott Management, Paul Singer’s $35bn hedge fund, continued to dominate the activist landscape. The fund launched 22 new campaigns last year, more than twice that of the next-biggest mover, ValueAct with nine fresh targets, and targeted companies in more countries than any other activist investor.
Elliott also topped the list with the largest market value of its current activist positions at $14.7bn. They were followed by ValueAct with $12.6bn deployed, Cevian with $11.2bn and Trian with $10.1bn.
Despite the record year of action, it is not clear that the surge will continue at a time of increasing market turmoil.
“It might be hard to match this year, but already we started the year with [Edward] Bramson demanding a board seat at Barclays and Elliott making a bid for QEP,” said Mr Rossman. “I’m expecting a busy year.”
“I think the volatility we’ve seen provides opportunities, but it also makes it more challenging,” he added. “The inherent challenge for stock pickers is to pick their spots, but the volatility can make it harder for everyone to see where the real opportunities lie, so it could have a dampening effect.”
But it could also reduce valuations in some sectors that activists had avoided because they felt valuations were too high, providing new targets, said Mr Rossman. That could include the energy sector as oil prices remain in a trough, bank stocks and the wider financial sector, and technology stocks.
A reduction in deals could also dent activism since so many campaigns were linked to M&A, he said.
Mr Rossman said that a trend he predicted at the start of 2018, that activists could branch into private equity strategies, would continue this year after Elliott went on a buyout spree in recent months.
“It’s really just Elliott that’s been doing this, but what I’m sensing is that some of the large PE firms are spending time talking to the activists and trying to ferret out ideas,” he said. “We thought that there would be more crossing over of those two groups, and we think there will be more blurring of the lines this year.”
