As activism has grown, a key question posed by academics and practitioners has been: What effect does the practice have on the long-term value of companies? After all, a common perception is that activists are primarily concerned with turning a quick profit on their investments – not setting companies up for sustained success.
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: In your opinion, what effect do shareholder activists presently have on the long-term value of companies? Leading deal experts weigh in...
Among our survey respondents, more than two-thirds said they think activists either have a very positive effect on long-term value (40%) or have more positive than negative effect on it (32%). Admittedly, a majority of our respondents (52%)
are themselves activist hedge funds – but 23% of that group said they think the effect varies widely from case to case, and 8% even said they believe activists have more negative than positive impact on value over the long term.
In recent years, influential players in the industry have staked out opposing positions on this issue. On one side, researchers such as Harvard Law School professor Lucian Bebchuk has published an analysis of 2,000 activist campaigns that shows the targeted companies outperformed their rivals even five years on. Opposing this view have been prominent corporate defenders such as attorney Martin Lipton of law firm Wachtell, Lipton, Rozen & Katz, who has taken issue with Bebchuk’s analytical methods (including his use of average results instead of median) and has proposed a new framework for shareholder relations focused on long-term growth.
A managing director at a Canadian investment bank notes that a distinction must be made between activists who are looking to earn a quick buck and those with more sophisticated strategies. “There are a certain number of campaigns that are really thought-through that can have positive long-term effects. But there are also campaigns whose effects outside the short term are much more difficult to gauge,” the investment banker said.