Shareholder activist growth over the last year has prompted companies to become more strategic in dealing with activist demands, though investors are also viewed as better suited to combat opposition against their campaigns. Experts say that sector distress and poor individual performance will leave many companies vulnerable to activist campaigns in the year ahead.
In order to find out how shareholder activism will impact 2018 dealmaking, Toppan Vintage, in partnership with Activistmonitor and Mergermarket, is pleased to present the newest edition of the M&A Pulse newsletter.
Toppan Vintage question: Which sectors will see the biggest increases in activist activity over the coming 12 months? Leading deal experts weigh in...
A natural area of focus for activists has been companies in sectors facing distress, whether due to long-term structural changes in the economy or due to temporary fluctuations. Two examples of troubled sectors being targeted by activists have been the consumer industry, which has been upended by the rise of online shopping, and energy, which has been hit by a sustained decline in fossil fuel prices.
Over the coming year, our survey respondents predict both the consumer (52%) and energy, mining & utilities (40%) sectors to be in the top two for increased targeting by activists. In Q1-Q3 2017, the top three sectors that fell into the crosshairs of activists were technology, media & telecommunications (23.5%), energy, mining & utilities (15.4%), and consumer (14.7%), according to ActivistMonitor.
One of the biggest consumer targets of activism in recent years has been in Europe, where funds have slowly begun to migrate in search of new opportunities. Dan Loeb’s Third Point Management has acquired a US$3.5bn position in packaged food giant Nestle, which represents about 1.3% of the company, and is demanding operational improvements to the massive Swiss conglomerate.
“The consumer sector presents a lot of diverse opportunities,” said a partner at a US-based activist hedge fund. “Even though the industry is moving backwards, the chances of a profitable outcome are higher because of factors such as the availability of a very big customer base.”
Perhaps surprisingly, 40% of our respondents also said they think financial services will be among the top two sectors targeted by activists in the year ahead. Just 5.9% of North American companies targeted by activists in Q1-Q3 2017 were in the financial services industry, making it tied for sixth place among sectors. Several high-profile campaigns have been waged against banks in recent years, however, including one at UBS that closed in 2016 and an ongoing battle for reorganization at Credit Suisse.