Corporate agitators slow down in Q2 but ready to pounce in H2 – Barclays data

By Svea Herbst-Bayliss

NEW YORK (Reuters) – Following the busiest quarter on record, activist investors slowed down 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 voting.

Investors including Elliott Investment Management, Engaged Capital and Legion Partners, launched 53 new campaigns around the world during the second quarter, down 32% from a record 78 campaigns in the first three months of 2023, according to data from investment bank Barclays (LON:).

Still, the overall pace remains in line with activity seen at the same time last year. Investors, bankers and lawyers expect a busy second half where activists may become more involved in trying to jumpstart mergers and acquisitions (M&A).

“Volatile markets and depressed M&A markets are not deterring activists from launching campaigns in 2023,” said Jim Rossman, global head of shareholder advisory at Barclays. They are “pushing companies to sell assets to unlock value, and finding new opportunities in Europe and Asia.”

After traditionally hunting for targets in the United States, activists looked abroad with Europe and Asia making up nearly 50% of all campaigns and the U.S. contributing only 41% in the first half, the data show.

Activist investors identify underperforming companies and then push management to perform better by making changes in the executive ranks, cutting costs or putting divisions and entire companies up for sale.

In the first half, 46% of all campaigns included an M&A component – up from the 42% four-year average – despite sluggish financing markets and a drop in deals, Barclays data show.

ValueAct pushed for a sale and management change at Japanese retailer Seven and I Holdings, while Carl Icahn is pressing gene sequencing machine maker Illumina (NASDAQ:) to undo its Grail acquisition and paved the way for former CEO Francis deSouza to resign earlier this month.

Elliott has asked utility firm NRG to conduct a strategic review, often shorthand for putting the company or a division up for sale.

Prominent activists Elliott, Inclusive Capital, ValueAct, Starboard Value and South Korea’s Align (NASDAQ:) Partners, combined 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 (NYSE:), Inclusive Capital’s push at Bayer (OTC:) and Icahn’s at Illumina making big headlines.

In the second half, Barclays’ Rossman expects to see a market with pent-up demand for M&A and $1.4 trillion parked in private equity firms’ war chests that needs to be put to work.

Activists may soon play a larger role in “bridging the gap between buyer and seller expectations” where the two sides are far off on price, one reason activity has been sluggish, he said.

Earlier this week, Reuters reported that software company Enfusion is attracting takeover interest from various parties including activist hedge fund Irenic Capital Management.

Investors may also be emboldened by the universal proxy card which was adopted nearly a year ago and lets shareholders pick and choose among company and dissident director nominees.

“The proof is in the pudding in the 2023 proxy season,” Rossman said. “Activists won seats at 80% of proxy contests that went to a final vote, compared to 33% in 2022.”