A leading consultant to activist hedge fund campaigns says the UK could see additional activism, notes US targets are increasingly harder to find.
US running out of easy targets
Speaking in a question and answer format in Bloomberg Brief’s Mergers publication, David Rosewater, a partner at Schulte Roth & Zabel who consults with activist investors, noted US activists are running out of easy targets. “It’s gotten a lot more crowded, and people are running a lot of similar screens,” he said, referring to the same view of available deals seen by many. “I think that’s one of the reasons you’re seeing activists in the U.S. looking elsewhere, such as Canada and the UK.”
Rosewater believes the UK is going to become more fertile ground for activist investors, which is why they are launching an activist practice in the island nation, he said. “In some ways, [UK corporate governance rules] are more friendly to shareholders than the U.S. laws,” he said, noting that firms such as Sandell Asset Management, FirstGroup and Jason Adler of SpringOwl have set up offices in the UK.
Changing attitudes among corporations being acquired
When considering the impact of activist investors on the behavior of corporate managers, Rosewater said “You rarely see the complete cold shoulder any more in the U.S., particularly if the activist is credible. People don’t typically refuse to meet or listen, as they might have years ago.”
As for the activists, Rosewater noted the importance of their reputation, saying fund managers are more likely to receive attention if they have a track record of good ideas and are supportive. On the other hand, he noted that if they have a reputation as being persistent – “not going away” – they will receive attention, he said, noting that activist investing is really about persuasion and is typically not accomplished behind the scenes.
Institutions more willing to listen to activist hedge fund
Institutions are much more willing to listen to activist appeals today than they were ten years ago. “willing to vote for change when they think it’s warranted,” he said. A major development is the rise of the majority slate, where activists seek to replace the entire board so that real change happens.
Negotiate if you have the votes
When asked about the Sothebys (NYSE:BID)’s situation, Rosewater didn’t comment on that proxy fight specifically, but rather said that situations like that all come down to who has the votes. If the activist has the votes, the board will negotiate. The benefit to an activist hedge fund to negotiate is that “not only do you avoid the uncertainty of the vote but, as you saw in Sotheby’s, you also can get your expenses reimbursed and you can get other concessions from the company.”