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Nov 22, 2015

Activist investors eye small and mid-cap companies

More than half of activists see opportunity at small-cap companies

Most activist investors see opportunities for their brand of investment at small to mid-cap companies, particularly in the energy and industrials sectors, while activism at large and mega-cap companies presents fewer possibilities, according to a study by Activist Insight and FTI Consulting.

Fifty-eight percent of activist investors surveyed say they see ‘significant’ opportunity for investment at small-cap companies while no investors see ‘limited’ opportunity, the survey shows. The number seeing significant opportunity at micro-cap companies drops to 42 percent with only 4 percent seeing limited opportunities; at mid-cap companies, another 42 percent see opportunities while 8 percent do not.

At mega-cap companies, 48 percent of investors see limited opportunities and 16 percent see significant opportunities, the survey notes. At large-cap companies, 28 percent see significant opportunities while another 28 percent see limited ones.

‘Although several proxy fights in the $50 bn+ market cap space have garnered a large amount of media attention in the past year, according to Activist Insight data, companies in the $10 bn+ range have accounted for just 13 percent of all activist targets since 2010,’ the study authors write. ‘By contrast, 71 percent of companies targeted had a market cap of less than $2 bn, which lends credence to the sentiment of these activists.’

Activist investors are most interested in the energy sector, likely because lower prices for commodities this year have hurt the sector financially. But the study authors say ‘activists are ready and waiting for signs of growth in this sector before beginning to engage’.

Just over half (52 percent) of respondents say they see significant opportunity for investment in the energy sector while 44 percent identify it as the most undervalued sector, the survey shows. The industrials sector, which has seen ‘quite a bit of activism’ recently, is cited by 43 percent as an area offering significant opportunity.

The sectors with limited opportunity, according to the survey, are utilities, cited by 65 percent, financials (30 percent) and telecommunications services (26 percent).