It seems appropriate to spend a moment this week on the state of activism in Europe as I leave it. The number of activist campaigns this year is at a record high – or thereabouts, with two months to go – and activism is seeping into the public consciousness. BBC Radio 4 hosted a documentary last night featuring Cevian Capital, a Swedish firm that would rather have eaten out at IKEA than be labeled an activist just a few years ago. The media, once pretty skeptical of hedge funds in general and activists no less so, has become pretty fond of punching up at underperforming or over-compensated management teams.
It’s not so much that activism is new, or even more high profile by historical standards. Indeed, both European and U.S.-based activists have always targeted large cap issuers here – Cadbury’s and ABN Amro before the financial crisis; UBS, ABB and Volkswagen more recently. The issue has typically been volume and buy-in. As recently as last year, institutional investors would tell conferences that their default approach was to view activists as wolves in sheeps’ clothing. Better the devil you know.
This year is different. Perhaps it won’t prove to be a turning point, but I think it could. At Sports Direct International, the pressure that was needed to force managerial changes proved enormous – parliamentarians, labor unions and newspapers led the assault – but shareholder pressure, including a rare public statement of concern from the Investor Forum, kicked off a number of personnel changes that were unthinkable a year ago. Similarly, Volkswagen could be sued the world over post-emissions scandal, but shareholders now have a chance to ask for a different kind of management structure. Sadly, block ownership, the protection of political and union interests and non-voting shares remove the pressure points activists would normally seek out.
Activists in Europe today are less likely to operate in the swashbuckling, but ultimately quite isolated fashion of yesteryear. Active Ownership Capital, which forced changes at Stada earlier this year, is negotiating regulatory reform with the German finance ministry, according to Partner Klaus Röhrig. Hermes EOS leads engagements with companies on behalf of shareholder groups, while the aforementioned Investor Forum is starting to develop some real teeth.
Petrus Advisers, a U.K.-based activist that operates across German-speaking Europe, the Benelux countries, Eastern Europe and (recently) Portugal, has been around since 2009 but is becoming progressively more open about its activism. Indeed, it is even offering advice, telling 40 North in a public letter this week that “Blatant threats and 1980’s barbarian-at-the-gates behavior will fail in European capital markets and our legal system,” in response to a takeover bid for Braas Monier.
Yesterday, Petrus’ head of activism, Till Hufnagel, told me that the continent was “underpenetrated” with “real opportunities” for an “entrepreneurial investor” like Petrus. The lack of volume doesn’t make it easy for activists, however. It makes management teams more resistant, and elevates the importance of tact. From Petrus’ letter to 40 North again: “Europe is about quality, sustainability as well as intelligent and equitable business dealings between educated and gentlemanly agents.”
The activist’s advice (alongside a request for a big increase in the offer price), was “adapt or be fought off.” For many of Europe’s activists, that will be true for years to come.