Market: Activist investors are back and have never targeted Europe so much

(BFM Bourse) – With 235 new campaigns carried out last year around the world, activist investors have never been so committed since 2018, according to the annual count of the Lazard bank. In Europe, 60 campaigns were carried out last year. Never seen.

After three years marked by a drop in the number of campaigns, activist investors have never been so active! Across 2022, 235 new campaigns were launched globally compared to 173 in 2021, according to a report by the Lazard bank. Over one year, these campaigns – which consist of a minority shareholder entering the capital of a listed company with a view to influencing its governance or its strategy – have thus increased by 36% compared to 2021, driven by a record first half. The records of 2018 are not very far away. This vintage had then counted 249 companies which had been the subject of interest from activist investors.

In addition to the resumption of campaigns, the companies targeted are increasingly important. In 2022, it was therefore the year of audacity for these activists who went in search of prime targets on their hunting board. Companies weighing more than $25 billion on the stock markets have attracted strong interest from these investors and accounted for 18% of targets in 2022.

The United States: Eldorado for activists

Unsurprisingly, the United States has been the activists’ favorite playground. Last year, 135 new campaigns were carried out there, an increase of 41% compared to the previous year.

US technology companies were the most targeted in 2022. Companies operating in this ecosystem accounted for 27% of all campaigns. The Lazard bank indicates in its study that this is the highest proportion ever recorded. The reason is obvious: the scrapping valuations of American tech companies have created a “conducive environment” for the actions of activist investors. Tech giants like Alphabet or Meta were, for example, worried last year.

Among the most emblematic battles of the year, we can cite the various assaults of Eliott, who in each campaign fights mercilessly against his adversaries. The fund, which has shaken states and multinationals for more than 45 years, managed to bend the Canadian oil company Suncor so that it reviews its strategy. Moreover, with 11 campaigns alone under his belt, Eliott is one of the attackers with the most battles in 2022.

But the great master in the matter still remains Carl Icahn. Very active with 13 campaigns launched this year, the multi-billionaire businessman has, for example, lobbied for the McDonald’s chain to buy from more respectful pig farming companies. The investor also reportedly took a large short position on the GameStop title since January 2021. Carl Icahn reportedly judged that the value of the notorious “meme stock” – stocks that enjoy market momentum through social media and forums – would not be in line with “its fundamentals”, reportedly reported to Bloomberg sources familiar with the matter.

Some activists would also like to follow in the footsteps of the pope of shareholder activism as well as those of Jana Partners, Land and Buildings, Starboard Value or Third Point. Moreover, the number of activists to pilot their first campaign in 2022 also reached a record with 55 new actors.

A record number of targeted companies in Europe

In Europe, the growing interest of activists in the societies of the Old Continent has also been confirmed. The number of campaigns there increased by 20% to reach a record level of 60 in 2022, against 50 a year earlier. By country, the UK is by far the most targeted country in Europe, ahead of Germany and the Netherlands. And on the sectoral front, energy or consumer goods are at the top of the battlefields preferred by activists.

In France, oil companies are regularly targeted by activist investors. Last September, the Ciam fund attacked the oil tanker Esso in France, owned by the American giant Exxon. The minority shareholder points the finger at the commercial relations between the two companies which would penalize Esso for the sole benefit of its American owner. Total energies was targeted by investor Clearway Capital a few weeks after the outbreak of the Ukrainian conflict. The activist investor asked the French oil giant to cease its activities in Russia or to consult its shareholders on its continuation in the country.

Billionaire activist investor Nelson Peltz has called for a management change at Unilever, prompting the retirement of CEO Alan Jope. For its part, the Third Point fund, run by activist investor Daniel Loeb, took a large stake in the capital of Shell and pushed the oil group to split into two separate companies.

new actors

The resounding blows carried out by certain tenors of shareholder activism give vocations to new actors. Lazard notices the arrival of private equity funds, family offices (those companies created to manage the assets of one or more families), or even individual investors. Their share in campaigns increased by 23% in 2022 against an average of 13% over 2018-2021.

The reasons for attack remain substantially the same. More than 40% – 41% exactly – of requests relate to mergers and acquisitions (opposed to a merger operation) when 30% of requests are related to representation on boards of directors. On this subject, the activists manage to be convincing since they have won 108 seats on the boards of directors of the targeted companies, an increase of 21% compared to 2021. This representation requirement is followed by those concerning the allocation of capital. (requiring massive share buybacks, payment of dividends, etc.) (16%) and the operational performance of the companies targeted (12%).

Once the assault is launched, what about the effect on the prices of the companies concerned? The announcement of an intervention by star activist funds hit the bull’s eye on the stock market. “A month after the campaign was announced, 70% of targets from leading activist funds outperformed the market compared to 65% of targets from all other investors,” notes Lazard. Investors would therefore anticipate a recovery in the financial performance of the companies targeted by these star activists. But this honeymoon does not last. The trend is even reversing. In the six months following the initiative, 58% of companies targeted by lesser-known activists outperformed the market, compared to 52% for companies that are the subject of a campaign launched by leading figures of shareholder activism.

Sabrina Sadgui – ©2023 BFM Bourse

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