A recent increase in shareholder activism 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. And activism is expected to continue to increase the volume of M&A deals in the coming 12 months according to 80% of experts.
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: What effect do you predict shareholder activism will have on global M&A activity over the coming 12 months? Leading deal experts weigh in...
One caricature of activists portrays them as singlemindedly focused on “strategic alternatives” to give shareholders an immediate windfall. But ActivistMonitor data shows that just 12% of activist demands in Q1-Q3 2017 involved pushing a company to sell itself, which is slightly higher than the 10.75% seen in 2016. Another 3% of demands in Q1-Q3 2017 were for a bolt-on, divestiture, or spin-off and 1.9% involved a push for an acquisition or merger.
Nonetheless, a large majority of our survey respondents said they expect activism to cause M&A activity to increase either significantly (44%) or somewhat (36%) over the coming 12 months. Eight percent think it will actually cause dealmaking to decrease somewhat and 12% believe it will have a negligible effect either way.
Indeed, activism could have a noteworthy effect on the number of public M&A deals if more funds campaign for them. ActivistMonitor figures show there were 73 demands related to M&A in Q1- Q3 2017 at North American and EMEA public companies; over that same period, there were a total of 635 deals for public companies in those regions. And to be sure, some high-profile activist situations have ended in transactions. For instance, a push by Jana Partners helped drive one of the splashiest deals of 2017: Whole Foods’ sale to Amazon for US$13.4bn in June. The activist, which also prodded retailer PetSmart into selling to private equity firm BC Partners in 2014, earned a profit of around US$300m on the Whole Foods exit.
A managing director at a US investment bank in the top 15 of the North America M&A league table in 2017 argued that more activists will push for deals if their initial demands are not met.
“Investors are becoming better prepared for the ways in which companies could retaliate or defend against their campaigns. I am sure that M&A deals will be the Plan B for many of these activists,” the banker said.