NEW YORK, June 30 (Reuters) – After its busiest quarter on record, activist investors slowed in the second three months of 2023 but are expected to mount more high-profile campaigns in the second half amid pent-up demand for acquisitions and a new way of votes.
Investors including Elliott Investment Management, Engaged Capital and Legion Partners launched 53 new campaigns around the world in the second quarter, down 32% from a record 78 campaigns in the first three months of 2023, according to data from investment bank Barclays (BARC. L).
Still, the overall pace remains in line with activity at the same time last year. Investors, bankers and lawyers expect a busy second half in which activists may become more involved in triggering mergers and acquisitions (M&A).
“Volatile markets and depressed M&A markets are not stopping activists from launching campaigns in 2023,” said Jim Rossman, Global Head of Shareholder Advisory at Barclays. They “force companies to sell assets to unlock value and find new opportunities in Europe and Asia.”
After traditionally chasing targets in the United States, activists looked overseas, with Europe and Asia accounting for nearly 50% of all campaigns and the US contributing just 41% in the first half, the data shows.
Activist investors identify underperforming companies and then push management to perform better by making changes to executive ranks, cutting costs, or putting divisions and entire companies up for sale.
In the first half, 46% of all campaigns contained an M&A component – more than the four-year average of 42% – despite sluggish financing markets and a drop in deals, Barclays data shows.
ValueAct pushed for a sales and management change at Japanese retailer Seven and I Holdings (3382.T), while Carl Icahn pressures gene sequencing machine maker Illumina (ILMN.O) to undo its acquisition of Grail, paving the way for former CEO Francis deSouza to step down earlier this month.
Elliott has asked utility company NRG (NRG.N) to conduct a strategic assessment, often short for putting the company or a division up for sale.
Prominent activists Elliott, Inclusive Capital, ValueAct, Starboard Value and South Korea’s Align Partners together accounted for nearly 30% of all campaigns in the first half.
More than half of all campaigns targeted technology, industrial or healthcare companies, including several activists going after Salesforce (CRM.N), Inclusive Capital’s attack on Bayer (BAYGn.DE), and Icahn’s at Illumina making major headlines.
In the second half, Rossman expects Barclays to see a market with pent-up M&A demand and $1.4 trillion in private equity firms’ war chests to put to work.
Activists may soon play a greater role in “bridging the gap between buyer and seller expectations,” where the two sides are far apart in price, one of the reasons activity has been sluggish, he said.
Earlier this week, Reuters reported that software company Enfusion (ENFN.N) is receiving takeover interest from several parties, including activist hedge fund Irenic Capital Management.
Investors may also be encouraged by the universal proxy card passed nearly a year ago that allows shareholders to choose between corporate nominees and dissident directors.
“The proof is in the pudding in the 2023 proxy season,” said Rossman. “Activists won seats in 80% of proxy contests that went to a final vote, compared to 33% in 2022.”
Reporting by Svea Herbst-Bayliss; Edited by Jamie Freed