In the investment industry, the activism is generally related to “shaking up” the companies. Investors generally launched activist campaigns just to “agitate higher offer and maximize the value for shareholders of the target company, according to FactSet.

Activism

There are situations when investors launch activism to try to  oppose ultimate shake up and challenges a merger & acquisition (M&A).  One of the possible reasons for their actions is probably because of concerns regarding the long-term strategy indicated in the M&A transaction. The shareholders of a target company normally launch activism campaigns, but their intention is not to block a M&A deal.  As mentioned above, their main objective is to increase value for shareholders.

No transaction experienced activism from both sides

Data compiled by FactSet SharkRepellent showed that 283 activism campaigns were launched by stockholders on the target side of M&A deal while 47 on the side of the acquirer. It is interesting to note that no transaction experienced activism from both sides.

According to FactSet, the data suggests that activist investors are “overly focused on increasing their own short-term profits” or the “board of directors of the target company are not fighting strong enough for shareholder.”

There is also a possibility that a free-ride problem exists, which means shareholders depend on activist investors to shoulder the cost of the campaign.

The report noted that 142 out of the 283 activism campaigns were successful in obtaining higher acquisition price from the buyers. Activist investors probably succeeded because of the presence of competing bidder or the original acquirer increased its offer.

Twelve out of the 283 activism campaigns and eight of the successful campaigns, the primary intention of the activist shareholders is to maximize value or obtain board seats and not to block the deal.

According to FactSet, the average cost of an activism campaign was approximately $1.4 million. Based on the figure, it is necessary for the activist investor to get significant increase in the acquisition price to ensure that the activism is successful and profitable.

M&A activism targets

M&A activism targets: majority of bidders strike a deal

Data from FactSet MergerMetrics, which monitors M&A deals including those that are no longer pending, showed that the original bidders strike a deal in 71% of activism targets.

The original bidders in 69% of the completed deals did not increase the value offered to the target shareholders. The recorded average increase in acquisition offers was 26%, in deals where the acquirer decided to raise the purchase price.

Data showed that only 11% of the original offer were increased (the average increase was 12%) for all the deals tracked by MergerMetrics.

Of all the transactions, only once bidder did not complete the acquisition due to activist pressure. Eight bidders explained that their deals were cancelled due to lack of shareholder approval. Three out of these nine deals included a bidder willing to increase the acquisition offer by as much as 22%.

Data also showed that activism campaigns rejected the offer of the original bidders in 33 transactions, which eventually attractive competing bidders. In those situations, 21 of the original bidders still acquired the company.

Deal jumping situations

In addition, activism opposes a friendly bidder in 30 out of 38 deal jumping situations, according to the data. The winning bidders raise their offer in 60% of deal jumping situations. The highest bidder did not complete the acquisition in 65% of the situations.

FactSet noted that the final acquisition price was higher than the original offer in deal jumping situations.