2016 Is Set To Be A Busy Year For Shareholder Activism
Shareholder Activism
2016 is set to be a busy year for shareholder activists according to FTI Consulting’s Activist Insight Survey. The survey quizzed 24 activist firms that have engaged in more than 1200 activist events, some of which have been the largest and most high-profile activist situations of the past year.
Shareholder activism id booming
Respondents to the activist insight survey indicated that the energy sector will see the most activist activity next year, and most activists believe the best activism targets are not Mega-Cap stocks, but rather micro- to mid-cap stocks. 58% of the respondents saw significant future opportunities for shareholder activism in small-cap stocks while 48% of the respondents saw limited future opportunities for shareholder activism in mega-cap stocks.
Just under half of the respondents identified Energy as the sector that is most undervalued, yielding added opportunity for gains. In contrast, 35% of investors identified Healthcare as the most overvalued.
And when it comes to the type of activism campaigns they’re expected to rise during 2016, most respondents (80%) answered that merger activism will be the most popular form of activism to take place next year. Activism aimed at either increasing consideration in an announced merger “bumpatrage” or attempting to stop an announced merger are widely perceived to be the type most likely to increase.
“Faced with a complicated economic climate, activists are looking at a number of different strategies to create value. These include forcing overpopulated markets to consolidate and focusing on operations in industries with stable revenues. This survey suggests both types of activism are likely to affect energy and industrial stocks in particular.” — FTI Consulting’s 2015 Activist Insight survey
Shareholder activism: Managements take notice
According to the survey, it has become easier for shareholder activists to reach a settlement with management during recent years. Over 90% of activists surveyed indicated that they found it less difficult to reach agreements with management during 2015 compared to previous years. And it seems management teams are now more open to engaging with activists as they have shown that they are happy to hold the stock for a long duration and are not purely event driven. Indeed, although suspected to be short-term investors, activists surveyed indicated their average holding period was three years, a 100% increase from the average holding period of one-and-a-half years as reported in the same survey two years ago.
See also: Adam Weiss Formerly Of Scout Capital: It’s Time To Short Activism
According to FTI Consulting’s Activist Insight survey, 2016 is going to be a busy year for activists, with 85% of activists expect to be involved in three or more activist campaigns over the next twelve months. In fact, two respondents anticipate double-digit involvement.
These campaigns will be marvelously planned. Around 50% of the activists surveyed indicated that they typically spent six months watching and evaluating a company before making an investment decision. Not surprisingly, 95% of activists said that an independent financial assessment helps form their opinion about a company. More interesting is that 80% of activists indicated that meeting with the CEO in person was critical to forming their opinion.
You can read the survey in full here.
Disclosure: None.