More than 100 European activist investor campaigns sweep market
Momentum is building for activist investors across the continent of Europe, according to a new study. 2023 has seen the number of activist campaigns steadily increase month-on-month since the start of the year, including more environmentally-motivated campaigns than ever before.
An activist shareholder is a shareholder who buys significant minority stakes in publicly traded companies in order to change how they are run. A fairly small stake may be enough to launch a successful campaign – in contrast to a full takeover bid, which can be more difficult and costly – allowing some activists to consider multiple targets.
In recent years, environmental, social and governance (ESG) issues have risen up the agenda rapidly amid the investment community. Previous research from audit and advisory firm Alvarez & Marsal (A&M) has suggested that a growing number of firms were in the sights of activist 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.”
Now, a new paper from the consultancy has found that activist interventions have continued to gain momentum in 2023 – with a particular emphasis on sustainability motives. Since January 2023, there have been 105 companies targeted by activist investors – the first time that has risen above 100 – with a record 12% of that relating to environmental campaigns so far.
Speaking on the findings, A&M Managing Director Malcolm McKenzie said, “Periods of turmoil eventually lead to a surge in activist activity as funds see value creation opportunities in disrupted businesses. With activity in the US already reaching record levels in 2023, boards should be preparing for the wave of activism to increase in Europe over the next 12 months, with greater demands for strategic and operational improvements to create value.”
UK targets
That goes double for firms based in the UK, which remains Europe’s top market for activist activity, with 24 campaigns so far in 2023. Alongside Germany, which has hosted 21 campaigns in 2023, A&M anticipates that the two markets will continue to be top targets for activist investors in the second half of the year.
Given their relative underperformance against global peers, particularly on margins, returns on capital and revenues per employee, A&M estimates that 49 UK companies are at risk of activist campaigns in the next 18 months, followed by 33 in Germany. In the British market, this is likely to be focus mostly on the industrial and consumer sectors – making up a majority of the predicted targets. This will partially be driven by desires from investors to push firms ahead with their net zero transition journeys, as well as boosting supply chain transparency.
André Medeiros, A&M’s EMEA co-head of consumer and retail, added, “Consumer companies continue to be tested with persistently high inflation squeezing margins, impacting volumes and highlighting weaker elements of their portfolios. Activists are demanding strategic and operational transformation to ensure earnings can be maintained in a tougher, lower volume trading environment, along with more disciplined capital allocation. Boards will come under growing pressure to increase returns on capital invested or release value back to shareholders.”
From the perspective of many firms may have left themselves in a weaker position in the last year, with polls finding that 86% of business leaders were preparing for an economic downturn, and roughly 50% were considering cuts to environmental, social and governance spending in response. Some investors indicated that they would be willing to sell up their stakes in firms which behaved in this way – leaving the door open to activist investors in the near-future.
