Throughout 2015 there were several high profile activist campaigns that captured the headlines across Wall Street, and while some of these campaigns are still dragging on, activists haven’t been able to generate the same kind of publicity as they did last year.
Volatile markets, global uncertainty, reduced funding and scepticism about activist tactics are are four key concerns that overshadow the activist industry. But despite these worries, the number of companies publicly subject activist demands rose again during the first half of 2016, climbing by 17% to 473 according to Activist Insight’s half-year review.
However, it seems that the style of activism has changed over the past six months. According to Activist Review, primary focus activists — those that dedicate almost all of their portfolio to companies which they believe are in need of shaking up — have taken a less active role so far this year subjecting 75 companies to public demands during the first half of 2016, compared to 81 in the first half of 2015. The US market saw a 20% decline in primary focus activist targets. Most of the increase in activist activity has been outside the US. This year the number of primary focus activists worldwide totalled 45. The number of occasional activists, those who launched activist campaigns less than once a year has doubled since 2014 to 175.
There has also been a drop in the number of M&A activist demands in the first half of 2016. Only 13% of the campaigns started during the half related to M&A, compared to 19% in the whole of 2015 and 15% in the first six months. It’s easy to blame this change in tact on higher valuations, concerns about corporate balance sheets and the general cyclical nature of the event driven activism industry.
Most of the activist campaigns this year have gone relatively unnoticed, the exception being a few high-profile battles with large-cap companies. It could be said that the media is suffering from activism fatigue after a busy 2015. 22% of public activist demands worldwide were at companies with a market capitalisation of $10 billion during the first half of 2016, the highest level since 2010. Companies subject activist campaigns with a market capitalisation of less than $250 million fell from 43% in 2015 to 37% in H1 2016.
Activism is still booming
The rest of 2016 may be somewhat of a consolidation year for the activist industry according to Activist Review. There are some metrics which suggest that the industry is shrinking, but others suggest that activism continues to find favour with investors. For example, while the number of activist campaigns in progress has grown during the first half of this year, primary focus US-based activist funds have seen their assets reduced by around $10 billion, bringing the total value of funds within the sector down to $146 billion.
Nonetheless, when you consider that this amount is 57% higher than the total reported in 2012, it’s clear investors are still interested in activism although, the lack of additional funding may handicap activists’ ambitions.
With valuations elevated across the board, maybe this isn’t such a bad thing.