Activist hedge funds have grown up and gone global, reinforcing the need for companies of all shapes and sizes to plan ahead for the possibility of an attack. A recent article by Martin Lipton in the Harvard Law School Forum of Corporate Governance and Financial Regulation reviews recent developments in the activist landscape and reconfirms the importance of preparing for an attack.
The Fight Has Gone Global
One recent development is the expansion of hedge fund activism across the globe within the past two years. Mr. Lipton suggests that activism typically associated with the American marketplace is quickly gaining traction abroad. According to the Activist Investing Annual Review 2017, a total of 758 companies worldwide received public shareholder demands in 2016, a 13% increase on 2015’s total of 673.
The growth of activist hedge funds in Europe and Asia have, in a large way, contributed to this worldwide increase. 97 European companies faced public activist demands in 2016, up from 72 in 2015, and predictions for 2017 suggest this number will continue to grow. The result of the Brexit referendum, far from scaring investors away, seemed to unlock potential for investors – both the UK and continental Europe experienced an increased presence of American hedge funds and institutional investors. US hedge fund investments in Europe are up 20% in 2017 as of July 4th and many funds will be looking into activist opportunities to boost the return on their investment.
Activism in Asia, on the other hand, has tended to take a slightly different form than that in North America, with the investment community favouring behind-the-scenes negotiations over public demands. Despite this, hedge fund activism in Asia is still experiencing major growth, rising from 52 public activist demands in 2015 to 77 in 2016. Japan, in particular, has opened its doors to shareholder and hedge fund activism, as part of Prime Minister Shinzo Abe’s plan to revitalize the country’s economy, and many activists are waiting to sink their teeth into these previously non-activist-friendly markets.
The growth in Europe and Asia is balancing out the relative stabilization in North America and Australia, with Canada experiencing a slowdown of companies facing public activist demands: 49 in 2016, down from 60 in 2015. However, far from taking this as a sign for Canadian companies to kick their feet up, Mr. Lipton argues that this global trend indicates that no company, no matter its size, success, popularity or location, should believe they are safe from a potential attack from activists.
In a previous post, we outlined some strategies for defending against an activist attack. The key to a successful defence lies in advance preparation, including maintaining and strengthening shareholder relations, preparing the board for an activist attack, and monitoring market activity and attack indicators. With the strength of activist hedge funds growing worldwide, it is important now, more than ever, for companies to brace themselves for impact and decide whether to negotiate with activists or gear up for a fight.
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The author would like to thank Abigail Court, Summer Student, for her assistance in preparing this legal update.