Activism is about to increase and the world’s most ardent practitioners will be looking for companies that emerge from the pandemic in poor shape as a way of finding their targets. So says research from consultancy firm Alvarez & Marsal (A&M) in their latest “Activist Alert” looking ahead at next year.
The firm claims activism is about to enter a “golden age” with 2022 seeing a 10% boost in activism across Europe. It says 148 companies are now at risk of targeting by activists. Among those in the crosshairs there are more UK companies with 21 looking vulnerable to an attack.
And this may result in more “bumpitrage”—a process seen in the takeover of WM Morrison, in which activists buy into a company after a takeover has been launched and attempt to boost the stock price through their own campaigning.
Poor ESG performance will also mark companies as possible targets, especially if they are large concerns.
According to Malcolm McKenzie, chair of A&M Europe Corporate Transformation services, performance during the pandemic and under the stress of Brexit, as well as supply chain difficulties, will be determinants in whether a company draws the attention of activist investors. “As we gradually emerge from the crisis with greater visibility into the winners and losers, activists will have a much greater ability to identify perceived value opportunities. They will be focusing bigger targets and investing for longer.”
As far as McKenzie is concerned failing to adapt to the needs of climate change will also place companies in the frame for activism. “The potential for reputational damage and subsequent financial damage has never been higher,” he says.
While Germany will see more companies become targets next year up from 22 in April to 27 now, British companies are under closer scrutiny.
“The relative underperformance of UK corporates compare to European peers is helping to make the UK a target-rich environment for activist investors,” adds McKenzie.
Activism in the UK
According to Activist Insight, a specialist publication, activism in the UK has fallen over the past couple of years. 2018 saw 58 UK companies targets by activists compared with 41 in 2020. However, the first three quarters of 2021 saw 37 activist interventions compared with only 27 for the same period last year and 51 in 2019. Activists may be hitting their stride.
Globally, Activist Insight says large cap companies accounted for 36% of the companies targeted, a much bigger proportion than any other segment of the market.
Iuri Struta, editorial vice president at Activist Insight, says not only did low company valuations make UK businesses more attractive, but so too did the corporate governance regime and the willingness of boards to engage with activists.
“This year, the UK has been one of the few markets that experienced an increase in activism—partly due to a rise in opposition to deal campaigns and increased activity by big players—and this might continue next year and beyond. Those companies that emerged worse-off from the coronavirus pandemic than their peers are especially vulnerable, as activists tend to target industry underperformers.”
The pandemic has been a challenge for many companies. But if you head a company somewhat battered by the experience, your next challenge may be dealing with activists.