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Cash & Working Capital

Activists Were Active in 2017

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January 18, 2018

And they might be even more active in 2018 as the world gets smaller

football x's and o'sIf you were a company with seemingly too much cash last year, you might have been an activist target, according to data from Lazard. By its analysis, activists spent a record amount of capital in 2017 going after some of the largest companies in the world.

Nearly 110 activists spent $62 billion across 194 campaigns globally last year, more than doubling the total deployed in 2016. “Activists won an additional 100 board seats in 2017, raising their five-year total to 551,” Lazard reports.

And they spent that money, leveraging their credibility and access to outsized pools of capital to attack a host of global companies they felt weren’t managing cash wisely, Lazard said. And this should continue according Ernst & Young, which in an October survey revealed that most executives it polled “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.”

Europe saw a big jump in activist campaigns in 2017, mainly because there are still cheap areas to jump in. “Campaign activity surged in Europe, driven by prominent US activists turning abroad to find comparatively attractive valuation entry points and potential ‘low hanging fruit,’” Lazard said. As a result, capital deployed in Europe doubled to $22 billion in 2017 compared to average $10 billion deployed between 2013 and 2016. Lazard noted that “nearly 30% of campaigns in 2017—a 65% increase compared to 2013-16—were against European targets.” E&Y says this will change as Europe-based activist get into the game.

Speaking Up
Activists also got vocal in 2017, and began advocating for social change in many cases. That continues of course with BlackRock’s Larry Fink calling on US the companies in which BlackRock invests to reveal long-term plans and show how their organizations contribute to society.

According Lazard, this trend of “changing temperaments of large institutional investors, especially index funds,” really started to pick up last year. “The expanding influence of BlackRock, State Street and Vanguard continued to be felt across the governance landscape,” Lazard said, “from public statements by the firms’ CEOs on investment stewardship principles to more aggressive stances taken on gender diversity and climate risk.”

Lazard also said that connection of activism and M&A “grew stronger” in 2017, “with the attractiveness of event-driven returns encouraging activists to assert themselves as a key player on the M&A chessboard.” This agitation “led to numerous strategic and sale processes as the ‘fix’ for underperforming businesses and acquirers leveraged the disruption created by activism.” That same pressure also helped scuttle a few deals after many deals “were poorly received by investors.”

All of which points to the importance of engaging with the company’s largest shareholders before they get antsy.

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