Shareholder activism became a strong trend in U.S. equity markets in the aftermath of the 2008-2009 financial crisis. Many companies had battened down the hatches during the proverbial financial storm, and activist investors had dozens of tempting targets to work with to create shareholder value.
Shareholder activism remains at close to record levels in the U.S. as investors pile in due to the success activists and raiders have enjoyed. Moreover, the trend toward shareholder activism is also picking up steam across the pond. A recent Activism Monthly Premium report notes, however, that “to say that activism is finally arriving in Europe is to underestimate the amount of activism that goes on in private.”
The Activist Insight report highlights that the number of shareholder activist campaigns in Europe in effect doubled over the last few years, from just 23 in 2010 to 46 in 2012 and 44 in 2013. The growth trend relates to growing interest in North American-style activism, and increasing capital inflows from outside Europe, and a large number of relatively shareholder-friendly regulatory climates together with new stewardship codes that encourage active ownership.
Shareholder activism is on the rise in the UK, according to Piers Prichard Jones, a Partner at law firm Freshfields. “Companies which have strong cash reserves are often attractive targets for activists. Many UK companies are in this position having prudently accumulated cash since the financial crisis.”
Prichard Jones also notes, “Listed corporates are generally more alive to the threat of an activist attack than they were even a few months ago and are asking themselves whether they are prepared. The tools an activist has in the UK market are arguably more extensive than anywhere else in the world.”
“Closed door” activism prevalent in Europe
Backing up the long-held belief that European shareholder activists existed, but preferred to work behind the scenes is a new study by Marco Becht and Julian Franks, academics at the London Business School.
In the study released a couple of months ago, the authors reported that among 131 campaigns by five activist funds before 2010, 44% were not publicly disclosed before or after the activist exited. “In Europe the private engagement is extensive for at least two reasons,” Brecht and Franks conclude. “First, several activist funds operating in Europe have a preference for engaging away from the public eye because they believe that more can be achieved in private meetings than in a public confrontation involving the press or the court of public opinion. Second, it can be easier to persuade other shareholders to align themselves with the activist position in private…”
However, despite the rise – there is still a long way to go – 90% of activist hedge funds are currently based in the United States.
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