Buoyed by an improved economic climate and unprecedented success in 2013, shareholder activists are expected to significantly influence the 2014 M&A landscape. As shareholder activism becomes more widespread, activists are becoming increasingly ambitious and creative in their approach.
Last year saw a rise in the power and influence of activist hedge funds. In 2013, activist hedge funds managed over $93 billion, a 42% increase from 2012. With more capital, activist hedge funds have been able to target larger and more sophisticated companies.
Shareholder activists are also looking to expand their geographic reach. Despite confidence in the North American market, in a survey undertaken by FTI Consulting, 40% of activists admitted to shifting their focus to Europe and elsewhere. Specifically, activists are getting more involved in the UK, where corporate governance and legal frameworks are the most activist-friendly.
As company awareness of shareholder activism has risen, activists are turning to new and innovative strategies to impact deal-making. An emerging trend sees activists use the threat of appraisal rights to extract a greater buyout price from eager targets. As an example, after threatening to pursue appraisal rights litigation, Carl Icahn and other shareholders were able to receive a higher buyout price in respect of Dell’s February 2013 going-private transaction.
It is also becoming increasingly common for shareholder activists to engage the acquirer-side of a transaction rather than the traditional target-side of a transaction. In the aforementioned FTI Consulting survey, 43% of activists surveyed acknowledged their desire to seek opportunities to discourage potential acquisitions and to pressure would-be acquirers to use their cash for share buybacks and dividends.
Shareholder activists are learning of the effectiveness of media, and in particular, social media, in their campaigns. Of those surveyed by FTI Consulting, 69% of participants expected an increase in the use of social media in 2014.
All of this is to say that no company is safe from activist interference. Companies should prioritize strong communication with shareholders and should implement takeover defences to maintain control of any transaction they wish to pursue.