New York, October 31, 2016 — Leading law firm Schulte Roth & Zabel (SRZ) today announced key findings from its 2016 Shareholder Activism Insight report, published in association with Activist Insight and FTI Consulting. The report, which surveyed the views of 37 of the leading activists in the marketplace, shows that acceptance and support for shareholder activism continues to increase across all constituencies. Notably, 92% of those surveyed believe institutional investors are more accepting of activists than in previous years, with activists also experiencing increased receptivity from retail investors, boards of directors, management teams and the media.
Other key findings from the report include:
- 84% of respondents see some or a lot of opportunity for activism in the United Kingdom, compared to 74% for the rest of Europe, and 19% of activists see no opportunity in Asia.
- 66% of activists feel companies should enter into an active dialogue with investors as an effective defensive tactic.
- The median length of time respondents hold their activist investments is three years and they target a median alpha-adjusted annual return of 20% on activist investments.
Will Shareholder Activism Continue To Grow?
What do you expect to happen to the volume of shareholder activism campaigns over the next 12 months?
Many factors have been predicted to precipitate the decline of shareholder activism, from higher interest rates to greater corporate preparedness, a more long-term agenda from passive shareholders, and the topping of the M&A cycle. So far, none have been able to dent activism’s rise.
[drizzle]In recent years, shareholder activism has gone from being a niche investing strategy to a thriving industry. Activism has facilitated some of the biggest transformations in capital markets – from sector consolidation to changing capital allocation trends – and accelerated the search for margin growth.
Today, few activists expect any backsliding. Only 12% of those surveyed see the volume of activism decreasing over the next 12 months – and almost three-times as many (32%), expect it will increase. However, the bulk of respondents expect activism to continue at current levels.
Compared to previous years, how accepting have the following stakeholders become of activist investors?
As they did in 2015, activists surveyed for this report believe most stakeholders have become more accepting of their role. Notably, 92% of respondents believe institutional investors are more accepting of activists than in previous years, with activists also experiencing increased receptivity from the media, retail investors, directors and management.
On the other hand, some activists have come to expect a tougher ride from sell-side analysts. While none of the funds surveyed last year believed that analysts were becoming less supportive, 17% of respondents this year perceive a growing chill in attitudes.
Where is activism heading?
For shareholder activism, how much opportunity do you anticipate in the following regions?
Activism continues to be a predominantly U.S. phenomenon. It has, however, spread around the world in recent years. Activists remain confident there is a place for it in Europe and Canada.
Activists believe the U.S. continues to present the largest investment opportunity, with 97% saying there is some or a lot of opportunity there. Activists have become more bearish on Canada, however, with 21% seeing little opportunity – up from 5% last year – perhaps because of continued weakness in commodity prices.
In Europe, respondents foresee a stronger future for activism in the U.K. than on the Continent, with 84% seeing some or a lot of opportunity in London-listed stocks, compared to 74% on the Continent. Surveys were sent out immediately after voters in the U.K. opted to leave the European Union, so this development should be factored in – although the timing and impact of “Brexit” remains unclear and subject to dispute.
A majority of activists surveyed see little opportunity for activism in Asia, despite notable campaigns at Samsung C&T, China Vanke and Seven & i Holdings in recent years. Indeed, almost one-fifth expect no opportunity for activism there – a view that is sure to be tested in years to come as recent corporate governance and shareholder rights reforms in markets such as Japan and Hong Kong are applied.
See the full report below.
SRZ partners Marc Weingarten and Eleazer Klein serve as co-heads of the firm’s global Shareholder Activism Group, which also includes London-based corporate and funds partner Jim McNally and New York-based litigation partner Michael E. Swartz. Contributing to the Shareholder Activism Insight report, Mr. Weingarten noted, “More directors with an owner’s perspective are still needed in many boardrooms, to respond to the increasing acceptance of shareholder activism.”
The report discusses the difficulty activist investors face in reaching resolutions with management teams. Commenting on the rise of settlements, Mr. Klein said, “Settlements continue to be the trend, but the tides may be changing.” The report is based on a survey sample consisting of economic activist funds, with combined assets under management of $153 billion, that have engaged over 420 companies in activist campaigns since 2010 including some of the largest and most high-profile situations.
The surveys were sent out immediately after the Brexit vote. In commenting on those survey results, Josh Black, editor-in-chief of Activist Insight, said, “It appears activists have every intention of being as busy next year as they have in recent times, while the U.K.’s decision to leave the European Union appears to have made both markets, if anything, more attractive to activists.”
The report also addresses the growing sophistication of campaigns. Steven Balet, managing director at FTI Consulting, commented, “Companies that have already been targeted with activism and which may even have activist nominees on their boards, will not necessarily be immune to either a refreshed approach for control by the original activist or from being targeted by an entirely different activist fund.”
“We are pleased to present the Shareholder Activism Insight report as it uncovers the issues that are top of mind for investors in today’s market,” commented Alan S. Waldenberg, chair of SRZ’s Executive Committee. SRZ is recognized for its renowned shareholder activism practice. Notable matters include the representation of: Altimeter Capital Management in its successful shareholder activist campaign at United Continental Holdings, the parent company of United Airlines; Elliott Management in connection with its agreement with PulteGroup, one of America’s largest homebuilding companies; and JANA Partners in entering into a cooperation agreement with Team Health Holdings, a leading physician services organization. To visit SRZ’s Shareholder Activism Resource Center, click here.
About Schulte Roth & Zabel
Schulte Roth & Zabel LLP (www.srz.com) is a full-service law firm with offices in New York, Washington, D.C. and London. As one of the leading law firms serving the financial services industry, the firm regularly advises clients on corporate and transactional matters, as well as providing counsel on regulatory, compliance, enforcement and investigative issues. The firm’s practices include: bank regulatory; bankruptcy & creditors’ rights litigation; business reorganization; complex commercial litigation; cybersecurity; distressed debt & claims trading; distressed investing; education law; employment & employee benefits; energy; environmental; finance; financial institutions; hedge funds; individual client services; insurance; intellectual property, sourcing & technology; investment management; litigation; mergers & acquisitions; PIPEs; private equity; real estate; real estate capital markets & REITs; real estate litigation; regulated funds; regulatory