An array of trends are revealed in financial advisory firm Lazard’s first-half 2019 Review of Shareholder Activism.
– Global shareholder campaign activity is in line with a multi-year pace
– An M&A thesis has developed
– Activists are driving significant board and management changes
– Activism outside the US has reached record highs.
On the first point, global campaign activity in the first half of 2019 saw 107 new campaigns targeting 99 companies, down 25 percent relative to the record-breaking first half of 2018, but in line with the elevated multi-year trend, reveals the report.
On this, Rich Thomas, managing director of the European shareholder advisory at Lazard, tells IR Magazine: ‘In 2019 we have seen a pullback in new campaigns but that should not be confused with a reduction in the level of activism. Because 2018 was the year of new ideas with a record number of new campaigns, 2019 has become the year of improving share price performance and generating activist returns. Management and boards can feel that pressure more than ever before.’
The top 10 activists increased their cumulative capital deployed in public activist positions – new and existing – from $75.5 bn at the end of Q1 2019 to $82.2 bn at the end of H1 2019.
An M&A thesis arose in nearly half (46 percent) of all campaigns in H1 2019, as activists continued to see transactions as opportunities to generate alpha. In Europe, M&A was an even more prominent theme, appearing in more than half of all campaigns.
Explaining this, Thomas says: ‘M&A activism has sharper inflection points and, in many cases, clearer paths to outcomes and value creation. In times of challenging markets, the M&A thesis – breakup, the sale of the company and a sweeten-scuttle deal – may provide the most effective path to near-term value creation. The consequence of this increased focus on M&A and strategy is more pressure on management teams and boards to clearly and convincingly communicate their vision for the strategic future of the business.’
Activists are also driving significant board and management change, winning 81 board seats in H1 2019 – 91 percent of which came from settlements.
‘Since 2013, approximately 800 board seats have gone to activist nominees,’ notes Thomas. ‘These new directors are stimulating a changed dynamic in the boardroom, creating an environment that is more challenging and less safe than ever before.
‘With CEO turnover at activist-targeted businesses being almost double that of the average company, management teams are feeling pressure to perform. This pressure is coming from an investor base that is much less patient than it was three years ago. For company leadership, that means accelerating initiatives and challenging the status quo.’
Of the 19 campaigns that went to a final vote in H1 2019, 15 were against non-US targets and activists prevailed in only two situations.
Activism outside the US reached record highs, with Europe receiving the most activist capital – 20 percent of H1 2019 global capital – and activists there focusing on smaller targets and M&A objectives. New campaigns against non-US targets accounted for 45 percent of global capital deployed in H1 2019, compared with 37 percent in H1 2018.
‘The shareholder base is globalizing its thinking and behavior in a way that it wasn’t three years ago, and valuations in Europe are attractive to these global investors,’ observes Thomas. ‘The increase in activism in Europe today is not a story of the activists in isolation – it is really about the changing dynamics of the company-investor relationship globally.’
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