M&A

Investor Activism Expected to Substantially Increase

As far as how activists will try to influence companies, a new survey predicts they will be more vocal about merger and acquisition deals.
Matthew HellerNovember 3, 2014
Investor Activism Expected to Substantially Increase

More than half of senior corporate executives and activist hedge fund managers expect a “substantial” increase in shareholder activism over the next 12 months, with particular attention being paid to management quality and growth strategies, according to a new survey.

Activist investors have become more successful at shaking up U.S. companies over the past decade, prompting management changes, spurring corporate breakups and gaining seats on boards, and law firm Schulte Roth & Zabel and data provider Mergermarket predict a further surge in activity.

“As long as activists can continue to deliver alpha returns, there is no reason to expect this trend to recede,” they said in a survey to be released Wednesday.

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Ninety-eight percent of the U.S. senior executives and activist investors who responded to the survey expect the level of activism to increase in the coming year. Sixty percent expected most of the growth to come from hedge funds and 24% from union funds.

“Successful proxy contests lead to successful returns,” David Rosewater, co-head of Schulte Roth’s activism practice, told The New York Times. “The biggest firms have brought it into the mainstream and made it more acceptable.”

He noted that the largest institutional investors have been willing to support activism campaigns, removing the stigma of backing an activist willing to wage war against management teams.

As far as how activists will try to influence corporations, 88% of the respondents expect them to become more vocal about merger and acquisition deals. “M&A has helped businesses grow, boost shareholder value in a short span of time and provide long-term returns,” one activist commented.

In addition, the survey predicts that activists will continue to go beyond suggesting financial engineering moves like spin-offs or special dividends and seek to highlight operational issues.

“Shareholders have been demanding their rights to closely examine companies’ synergies, their financial performance and the efforts they are making to increase shareholder value,” the vice president of a technology firm told Schulte Roth.