Investor Relations

Shareholder Activism May Decline Next Year

"Activism has become a crowded field, with too many players chasing after a diminishing number of attractive targets," says Moody's.
Matthew HellerNovember 10, 2015
Shareholder Activism May Decline Next Year

Some relief from activist investors may be in sight for North American nonfinancial corporations.

While shareholder activism is set to reach a record high in 2015, with primarily negative implications for credit, the tide should ebb next year, according to a report by Moody’s Investors Service.

“Given growing headwinds, we think activism will level off and possibly decline in 2016, at least for North American nonfinancial corporates,” Moody’s analysts said.

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Those headwinds include declines in activist hedge fund inflows and the number of attractive targets as well as the possibility of higher U.S. interest rates. At the end of the third quarter, there was $121.8 billion in activist hedge fund assets under management (AUM), according to Hedge Fund Research, down from $129.6 billion in the second quarter. That was the first drop in AUM since 2008.

“Activists still have plenty of firepower to shake up company boards, push for M&A activity, and seek business strategy changes,” Christian Plath, a Moody’s vice president, said in a news release. “But activism has become a crowded field, with too many players chasing after a diminishing number of attractive targets. And recent market volatility has somewhat reduced their ability to launch new campaigns.”

Through Oct. 15, activists have launched 178 publicly announced campaigns so far this year, the report says, compared with 165 during the same period last year. Moody’s projects a total of 225 to 235 activist cases at nonfinancial companies in 2015, beating the record of 222 last year.

“In most instances, this will be credit negative for the targets because of their increased susceptibility to forced changes” in strategic direction or financial priorities, Moody’s said.

Targets remain concentrated among companies with a market cap of less than $1 billion but activists “have become increasingly emboldened to go after larger quarry” including DuPont and General Electric.

One variable next year could be market volatility. A longer-term downturn, Moody’s said, could reduce activism by forcing companies to “lower their risk tolerance and adopt more conservative strategic and financial policies.”