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Capital Markets

Activism Spreading Beyond Borders

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November 28, 2017

Activism continues strong in the US but now is spreading and becoming an issue for Asia and Europe.

Money compassThere is no doubt we an environment that sees more capital seeking out activists and activism becoming like a spreading bug. And this doesn’t just mean to those companies that seem ripe targets, i.e., lots of cash (supposedly) sloshing around. Anyone can be target nowadays. And that sentiment is spreading beyond the confines of the US.

According to a recent survey on the M&A landscape by Ernst & Young, activism will grow across the board for virtually everybody. “Executives expect shareholder activist campaigns to increase in the next 12 months, as a low-yield environment compels such investors to look for other avenues to boost returns,” E&Y’s survey results reveal. And even though activism has “long been a feature of corporate life in the United States… as the field becomes more crowded at home, established US-based activist investors are looking overseas for opportunities.”

When executives were asked where they saw the most activist activity in the future, most understandably said the US; but a sizeable percentage said growth in activist campaigns was heading to Asia and Europe. E&Y says that until recently Asia wasn’t on anyone’s radar for shareholder activism, partly due to a “greater propensity for listed companies to have controlling shareholders, often founders and family interests, or embedded government interests.” But in the coming months and years, “activism in Asia is expected to rise as markets evolve to encourage more mixed ownership models.”

Europe, too will soon see more activism, E&Y says. But in this case, it’ll be European activists agitating for change. “There is evidence to indicate that activists will follow in their US counterparts’ footsteps and … become more disruptive in the near future,” E&Y says.

M&A Top of Mind
Shareholder activism actually comes in third when it comes to boardroom thinking, according to E&Y’s survey. First comes “Identifying opportunities for growth, including M&A, JVs and alliances,” followed by the “Impact of digital technology and transformation to our business model/threat of digitally enabled competitors.” Then activism.

But percentage-wise, they’re all close and all intertwined. E&Y says boards are looking to strike a balance between long-term growth and short-term opportunities, all the while remaining aware that activists are circling, looking for a way to influence whatever decision they make. So on the one hand, technology transformation is pushing companies to change business models, look for partnerships or pursue acquisitions. On the other, they want to make sure the avenues they pursue put the company in a sustainable position long-term. All of which points to making sure the company portfolio is flexible enough to make the necessary changes.

“This tension between short-term opportunity and long-term growth is apparent in the increasing frequency that executives are reviewing their portfolios,” E&Y says. “Faced with the twin challenges of activist and other shareholder demands, as well as industry disruption, companies cannot afford to stand still.”

Perhaps all easier said than done, particularly when activist sometimes (disputably) are seeking the short-term solution that benefits them and not the company’s long-term health.

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