Activists have chosen their past targets well, with their campaigns helping to produce above-market shareholder returns, according to the latest Activist Alert from global professional services firm Alvarez & Marsal (A&M).
On average, in the two years after the launch of a public campaign, targeted corporates in Europe and the US outperformed broader markets by 6.3%. UK targets saw the highest average returns at 9% above the Stoxx 600, with strong performance in 2022 and 2023 despite depressed valuations.
The number of activist campaigns in Europe has increased year-on-year, up to 193 in 2023 compared with 173 in 2022 – an increase of 12%, and the pressure on Boards is expected to continue in 2024, with 146 corporates at risk of an activist attack.
According to the share price analysis, the most successful campaign strategy for activists continues to be operational demands, which outperformed the market by 9%. By contrast, Environmental and Social campaigns saw the weakest relative returns, with outperformance of just 0.2%.
After a slow start to the year in 2023, the number of activist campaigns picked up significantly in the second half, with comparable numbers to the boom activist years of 2019 and 2020.
Corporates in the UK continued to make up the majority of the targets, with 59 campaigns in 2023, up from 55 in 2022. The Consumer sector remained top of the activists’ agenda, with 30 campaigns against companies including Entain, Carlsberg and The Restaurant Group.
Demands for operational and strategic changes saw the biggest growth in 2023, more than doubling from 14 in 2022 to 34 in 2023, and now making up 18% of all campaigns. M&A-related campaigns also increased in H2 2023 (28 campaigns in total for the year), for example against Telecom Italia and DX Group, as deal activity began to recover. The number of Environmental and Social campaigns grew again, up 56% year-on-year from 18 in 2022 to 26 in 2023.
The size of corporates targeted by shareholder activists fell in 2023, a reversal of the prevailing trend since 2019, as activists saw more opportunities in the mid-cap market, particularly around M&A. The average size of targets by market cap fell from €26.4bn in 2022 to €23.2bn in 2023.
The AAA has identified 146 corporates that are predicted to be at heightened risk of public shareholder activism in the next 18 months, up from 143 in July.
The number of UK targets has increased by two from 52 to 54, partly a result of greater exposure to the consumer and energy sectors. In particular, consumer packaged goods will attract increased activist attention. Corporate valuations in the UK are relatively low, offering greater opportunities for activists to buy in at attractive prices.
In total across Europe, Industrials and Consumer companies make up 55% of all predicted targets with 45 and 35 corporates at risk, respectively. European industrials have, on average, underperformed their global peers in areas including net margins, asset turnover and cash conversion, and will continue to wrestle with cost of capital challenges. Similarly, consumer corporates remain under pressure to protect revenue growth and gross margins.
