Activist Investors Will Keep Targeting Big Tech
Don’t expect activist investors to lose their appetite for big-tech companies in 2023.
Last year, tech was the most targeted sector for U.S. activists, accounting for 27% of campaigns—well above the historical average of 16%, according to Lazard data. No target was too big: Meta Platforms META +2.37% (ticker: META), Salesforce CRM +3.31% (CRM), and Alphabet GOOGL +5.34% (GOOGL) were just some of the names in the crosshairs in 2022. And the new year already brought a fresh target with Chewy CHWY +3.58% (CHWY) co-founder Ryan Cohen targeting Chinese internet giant Alibaba Group Holding BABA +2.81% (BABA).
Market volatility is one of the reasons for targeting tech, whose sky-high valuations crashed last year, or at least settled into a lower orbit, creating a wealth of opportunity for activists.
“When we look at the overall sector penetration, tech is a large percentage of the public company universe,” Mary Ann Deignan, managing director and head of Capital Markets Advisory at Lazard, tells Barron’s. “You could look at tech and say there’s a lot of places to go for tech campaigns—a lot of untouched companies.”
But there’s more to it than that. While it’s true that market volatility may reveal new opportunities, activists also have to be careful about protecting their own portfolios in down periods. Large, popular tech names offer less trading risk than lesser-known companies, should an activist decide to make a quick exit.
“These very large names have more liquidity,” says Deignan. “When markets are volatile, liquidity is your friend.”