Activist Insight recently published the fifth annual edition of The Activist Investing Annual Review (the Review). The Review analyzes global activist investing trends over the past few years, with an emphasis on 2017, forecasts developments expected in 2018, and breaks out key statistics by jurisdiction.
The 2018 Forecast
The Review identifies four big trends expected to make their mark on 2018 activism:
- Return to large-cap targets. With more institutional investors recognizing the benefits of an activist approach, such investors have become more and more willing to support activist campaigns. This support allows activists to challenge larger and larger companies, a trend showing no signs of slowing down in the coming year.
- Resurgence of the proxy contest. With declining settlements and bolder defence tactics, many companies facing activist campaigns have become less willing to settle.
- Backlash against dual class shares. In 2017, dual class share structures came under scrutiny from S&P Dow Jones, FTSE Russell, and MSCI, with backlash causing companies to rethink plans to offer non-voting shares in forthcoming IPOs.
- Activism outside the United States. Shareholder activism is gaining traction in Europe and Asia, from shareholder rights directives adopted in the European Union to corporate governance reform in Japan. Continuing the trend from past years, global activism is expected to continue its upward trajectory.
Focus on Canada
In Canada, 2017 saw 47 targets face public demands from activist investors. This represents a decline from 2016 and 2015, in which 53 and 60 companies were publicly subjected to activist demands, respectively. Nonetheless, outside of the United States, Canada ranked second highest in number of activist targets by location of company headquarters, topped only by Australia with 53 targets in 2017. In addition, these numbers do not reflect activist activity that occurs behind the scene without public campaigning.
Breaking down the statistics by target characteristics, activism in Canada in 2017 aligns with Canadian market characteristics generally. Accordingly, approximately half of the target companies headquartered in Canada that faced activist challenges had a market cap of $250 million or less, with another 30% between a market cap of $2 billion and $250 million. Similarly, the breakdown of activism in Canada by sector reflects the two-thirds share of Canadian stock listings in the energy and financial sectors. The recent cyclical downturn in the energy sector correlates to the reduction in activist activity in Canada over the past year. However, as the cycle swings upward again, watch for increased activity in this sector.
M&A activism increased in Canada by 0.9 percentage points from 2016 to 2017, a more modest increase than observed in Europe and Asia, but contrary to the trend set by Australia and especially the United States. In 2017, M&A activists were increasingly likely to advocate for an M&A transaction, up to 65% from 56% in the year prior. Despite the lull in 2017, overall M&A activism has shot up over the last five years, with activists pushing for more comprehensive changes through deal-making, another important trend to watch for this year.
The complete Review may be obtained from Activist Insight here.
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The author would like to thank Kassandra Shortt, articling student, for her assistance in preparing this legal update.