UK remains high on activist investor agenda

07 June 2021 Consultancy.uk 3 min. read
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UK corporates are highly attractive to activist investors, according to a new study. ESG concerns are at the heart of factors attracting such investors, meaning they are particularly interested in the country’s industrials sector.

In recent years, environmental, social and governance (ESG) issues have risen up the agenda rapidly amid the investment community. Research from audit and advisory firm Alvarez & Marsal (A&M) at the turn of the year suggested that companies which boasted sound fundamentals but still exhibited signs of organisational weakness were firmly in the sights of a growing number of investors on these grounds, especially in the case of organisations which “misfired operationally and potentially exhibited signs of poor governance since the onset of Covid-19.”

While the pandemic looks to be receding in the UK for now, the appetite of activist investors has not subsided. In December 2020, A&M found that 60 organisations in the UK were likely targets for activists within the next 18 months, and half-way through 2021, this remains steady at 59 companies.

Number of predeicted activist targets

Malcolm McKenzie, Managing Director and Head of European Corporate Transformation Services, said, “While the impact of the pandemic has undoubtedly subdued activism across Europe, there are clear signs of pent-up demand that will be unleashed, particularly in the UK To ward off unwanted activist attention, corporates must be honest with themselves about their vulnerabilities and take action to mitigate them before activists weigh in.”

A larger shift appears to be in the level of urgency seemingly relating to such investment. Just 19 of the entities identified were anticipated to become a target within the next six-to-12 months, compared to 23 at the start of the year. With that being said, the UK still remains by far the most popular destination for activist investors – with the closest equivalents being France and Germany, with nine and six entities respectively expected to become targets in the coming year.

The researchers believe this ongoing activist interest in the UK is thanks in part to its “activist-friendly regulatory environment,” paired with the general underperformance of UK companies during the crisis versus Continental Europe. The top targets in the UK are predominantly in the industrials, consumer, and healthcare sectors.

Due to the heavy environmental toll of industrial companies, the sector remains top of A&M’s predicted target list for activists, at 54. However, notably the consumer sector has seen a major spike in interest, as retail opens up again after lockdown. Among the 30 targets identified are consumer brands and products, as well as apparel and luxury goods companies, and while high-street retail remains challenged, activists are considering select opportunities there too.  

Meanwhile, activists remain focused on the technology-sector, with 29 companies predicted to be at risk. This is consistent with A&M’s update in December 2020, and reflects ongoing activist scrutiny of tech companies that have seen poor bottom-line performance and returns.

Looking ahead, even though the Covid-19 pandemic may see a lull in activist activity in the immediate environment, the researchers believe a major uptick in activity is on the horizon. According to McKenzie, activist ‘wolfpacks’ are now increasingly being joined by a broader set of stakeholders, who will continue to call for change, particularly around ESG.

McKenzie added, “More Boards in Europe will be coming up against campaigns from multiple activists, creating a Gordian knot of strategic, operational, financial, environmental, societal and governance challenges. Companies must have a strategy in place to balance this wider range of demands, which are often competing, or face being cornered on all fronts.”