Activist investing is on the rise, and some public companies are not happy about it. With well-known businesses such as Salesforce and Disney attracting activist campaigns, what are the implications for management and shareholders?
In 2022, activists launched the most investor activism campaigns (632) since Bloomberg began tracking global investor activism in January 2017. See the chart below.
As background, activist investors aim to make money by minority investing in underperforming companies, trying to improve company performance, and then selling their shares for profit. Activists sometimes work privately with management to implement their changes—though they often also run public campaigns to convince shareholders and managers to implement changes—often with a focus that companies should be returning capital more aggressively.
Large-cap companies can be especially desirable for well-funded activists as these companies have market float, allowing activists to enter the stock and then exit the position relatively seamlessly.
On their March 15th, 2023 Goldman Sachs
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Exchanges podcast, Avinash Mehrotra, co-head of Americas M&A, and Pamela Codo-Lotti, global COO for the practice, discussed the rise in shareholder activism campaigns, particularly among large cap companies. They noted that in the prior week there were a high number of 12 announced campaigns. But even that high announced number can be deceptive as they were additionally working on two or three times that number of campaigns privately—an extremely high level of activity.
Goldman further observed when you look at the S&P 500 today, one out of four companies in the S&P 500 has an activist in it. And if you look at that in Europe, one out of three companies in the FTSE 100 has an activist in it.
What’s driving the surge in shareholder activism activity? There are three big trends.
- Markets are volatile and valuations are down, creating opportunities for activists.
- Established activists like Paul Singer have raised record funds—Elliott raised $13 billion last year, the biggest activist capital raise ever.
- The number of activists is growing, with established activist funds spawning new funds. For example, ex-Elliott PMs are raising their own fund. And an ex-Icahn PM is also launching.
Some companies are benefiting from activist activity, like the investment banks that offer advice to corporates. At a March management meeting between Goldman Sachs and Moelis
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Co-Founder Jeff Raich, Raich observed that activism levels accelerating allows Moelis to develop stronger relationships with corporates when they provide defense advice—and these stronger relationships mean Moelis is more likely to be mandated on M&A assignments by these corporates over time.
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