Where have all the shareholder activists gone? Campaigns slow amid market turmoil

Activist investors trying to shake up corporate America may be cowering as new data points to a slowdown in campaigning as markets pivot amid fears of faster rate hikes, runaway inflation and geopolitical turmoil.

The sharp decline in activist campaigns seen in the last four weeks could give corporations breathing space to tackle the problems on their own, avoiding battles with corporate agitators for leadership, spin-offs or even the sale of the entire company. lawyers, bankers and industry analysts said. .

Activist shareholders, typically hedge funds such as Elliott Management, Starboard Value, Jana Partners and Sachem Head Capital Management, employ investment strategies where the goal is to boost share prices by pressuring underperforming corporations to perform better.

They often campaign for board seats, a change in CEO, an asset sale, or even a sale of the company.

Data from research firm Insightia shows that investors launched just 22 activist campaigns at US-based companies between May 20 and June 20, down from 25 during the same period in 2021 and 42 campaigns launched in 2018, the year with the most campaigns during that period. in the last seven years.

“An activist is not in business to conduct proxy fights,” said Cas Sydorowitz, global head of Georgeson, which provides governance, proxy solicitation and shareholder engagement services. “They are in business to generate outsized returns for their clients.”

This year, few activists are doing that.

In fact, in the first five months of 2022, activists are among the worst performers in the hedge fund industry overall, posting an average 13% loss for the year to the end of May, according to Hedge Fund data. Research. More recent data has not yet been collected.

They, like many other investors, have been hit by falling stock markets that have been rocked by the highest inflation rates in decades, fears that central bankers will quickly end their easy money policies and concerns about global growth in the face of the war in Ukraine.

Meanwhile, hedge funds focused on macro investments are up 9% on average and funds focused on energy investments are up 4.55%, HFR data shows, even as the S&P 500 index of the The broader stock market is down almost 18%.

The recent slowdown in activist campaigns contrasts with a faster pace seen in the first few months of the year when activists ratcheted up their pressure again after some gave companies a reprieve during the pandemic.

Between January 1 and June 22, activists launched 669 campaigns at US-based companies, compared to 503 campaigns launched during the same period in 2021, Insightia data shows. This year’s battles included fights for board seats at chemical company Huntsman Corp, retailer Kohls Corp, food distributor US Foods Holding Corp and toymaker Hasbro Inc.

Globally, 999 campaigns were launched in the first months of 2022 compared to 825 a year earlier, when the effects of the pandemic slowed the pace of campaigns, Insightia data shows.

Now, fund managers, lawyers and investors agree that the market turmoil is dealing a further blow to activists shortly after COVID-19 caused many to stay on the sidelines.

In the past six months, activists, making their campaigns public, have increasingly called on companies to sell units or even put them up for sale, leaving bankers saying demands for a component of mergers and acquisitions in campaigns have increased to about 50% now. from about 30% several years ago.

However, with the Standard & Poor’s 500 index down 17.8% since January, many activists are concerned about how their demands may be received as valuations are falling and financing is harder to come by, bankers and lawyers said. .

At Zendesk Inc, for example, the software company initially rejected offers to sell up to $132 a share in February, then declared the sale process closed, then agreed to sell for $77.50 a share, all while activist Jana Partners lobbied vigorously for a sale. and braced for a proxy contest in which investors said they likely would have easily picked Jana’s nominees for the board.

“Investors who would otherwise lean toward activism can’t predict how much stock prices will continue to drop, and therefore avoid spending capital on entire campaigns for the time being,” said Lawrence Elbaum, who co-heads the law firm. Vinson & Elkins. ‘ shareholder activism practice.

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