Now that everyone knows activist investors are on the prowl, management teams are starting to approach investment banks and other consultants to figure out what they can do to stave off a campaign before it begins. But Barclays has taken a more proactive approach, screening more than a thousand companies every quarter to figure out which ones are the most vulnerable, and then approaching them before the activists to get their organization ready.
M&A is the new theme for investor activism
“We spent a great deal of time with the activists who have been more successful—and we found a certain amount of uniformity in their targets,” says Daniel Kerstein, Head of Barclays Strategic Finance Group in an interview with Activist Insight.
Maverick Capital's flagship hedge fund lost -22.9% in the first quarter of 2022 according to a copy of the firm's quarterly update, which ValueWalk has been able to review. The firm's flagship fund, Maverick Fundamental Hedge, accounts for $3.7 billion of the group's $8.1 billion of assets under management. Even after losses in the first Read More
In 2010 and 2011, Kerstein says that the main activist theme was forcing conglomerates to streamline, fueled by low interest rates and investors desire to get riskier fixed income assets. That shifted to a focus on balance sheets, Icahn’s push for Apple Inc. (NASDAQ:AAPL) to increase buybacks being a case in point, but now he thinks the main trend in activism has shifted yet again, this time to mergers and acquisition.
“There are buyers and there are probably sellers out there. Sometimes it just needs a push,” says Kerstein.
Investor activism: Management should fight for its strategic vision
Even though he is usually working with management, Kerstein doesn’t necessarily see activism as a problem, and he rejects the notion that activist investors and managers are always at each other’s throats. Activists can offer sound alternatives, and adding a bit of leverage doesn’t necessarily drive other projects off course anyways. Part of the story of activism’s rise is that executives realize they have to at least give campaigns a fair shake. But too much passivity is no virtue either.
“Where you really need to come out fighting is when the ask is going to materially impair the strategic vision management has for the business,” says Kerstein.
As strategies become more and more common, the quality or reasonableness of the asks is going to vary quite a bit. It might not be what they signed up for, but management teams will have to be prepared to explain their strategies to shareholders with greater frequency and transparency in order to fend off the most damaging demands. Whether fighting or simply discussing, being unengaged is less and less of an option.