The days of barbarians at the gate are long gone. Nowadays, executives are more likely to find long-term investors at the boardroom door.
In the past few years activists have broadened their horizons, targeting even small and mid-cap companies. Institutional investors are supporting activists more and more, as Steve Balet and Scott Barshay discussed with DirectorCorps CEO Al Dominick in a recent webcast. Balet is a managing director of Strategic Governance Advisors; Barshay is a partner and head of global M&A at the law firm Paul Weiss.
Peering into the future, Balet sees two emerging trends. First, an increase in activism on the acquirer’s side in M&A. In the past, “activists had almost always agitated on the target side for increased consideration during an M&A situation. This was particularly prevalent in take-private transactions during the early 2000s. When private equity became less involved in public M&A following the financial crisis, activists, always quick to adapt to changing market conditions and extremely conscious of risk, began looking at transactions differently. They recognized there may be an opportunity to trade on the acquirer side, where the stock price of the acquirer dips post-announcement, and try to realize that potential yield by stopping the transaction,” Balet explains.
Another trend Balet has seen “exploding” in the past year is overseas activism, especially in Europe, Australia and Japan. He expects this trend to continue and grow. “U.S. activists have already begun agitating overseas, but mostly the larger funds. I think we may begin to see some of the smaller U.S. activist funds also begin this push overseas, joining smaller, homegrown funds that already exist in local markets.”
Balet believes this push may be due, in part, to the willingness of overseas institutions to vote with activists, certainly more so than in the US. Stateside, Balet says we’ve only begun to turn that corner.
Balet says it’s more difficult to escape activism in today’s climate, even in the early days of being a public company. “Proxy advisory firms once gave a long runway to new companies, but that runway no longer exists,” he said.
Activists have gone after companies months after they’ve gone public or spun off, mostly over governance-related issues, as was the case when the California State Teachers’ Retirement System targeted Snapchat parent Snap. Soon after Alcoa Corp. spun off its aerospace and auto parts manufacturing side into Arconic, Elliott Management Corp. began targeting the new firm, which later broke itself up to maximize shareholder value.
Companies should prepare in the pre-IPO phase for activist challenges ahead. Solid, strategic governance is the best defense against the investors and barbarians at the gate.
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