Bankers warn corporate clients to expect resurgence in activist attacks
Advisers predict campaigns will get going after companies release second-quarter results
Bankers have urged their corporate clients to brace themselves for an onslaught from activist investors, as many hedge funds that kept a low profile in the early stages of the coronavirus pandemic start to agitate for change.
The Covid-19 crisis has shown up flaws in many companies’ business models and pushed down their share prices, making them more vulnerable to external pressure, advisers have warned.
Darren Novak, head of activist defence at UBS, said there was a “tremendous” amount of activism after the 2008 financial crisis and he expected 2021 to be another busy year. These moves could start in the coming weeks, he said.
“Activists are waiting for second-quarter results to come out to see which companies are most vulnerable. That will be just the beginning of the wave,” Mr Novak added.
Activist campaigns stalled in the first half of 2020 after some hedge funds held back from making public moves due to the potential reputational risks of acting aggressively during a global crisis.
Worldwide, 522 companies were subjected to public campaigns in the first six months of the year, compared with 628 in the same period last year, according to Activist Insight, a data compiler. That makes it the quietest start to a year since 2015.
Edward Bramson’s Sherborne Investors was one of the highest profile investment managers to suspend campaigning when it announced in April that it would not vote against Barclays chief executive Jes Staley’s reappointment at the bank’s shareholder meeting, due to the “complexity of the management situation” during the coronavirus crisis.
David Hunker, head of shareholder activism defence at JPMorgan, said clients whose share prices had dropped significantly were busy preparing their defences. Disappointing second-quarter profits, or a surge in Covid-19 infections, could create an opportunity for activists, he said, adding: “It will be more difficult for companies to defend themselves.”
UBS has developed a tool for its clients that uses machine learning to analyse financial data from more than 5,000 historical campaigns in order to identify which companies are most at risk of being attacked. “The tool analyses everything we can measure — it is trying to mimic the activist’s brain,” said Mr Novak.
Other activist defence tools offered by banks such as JPMorgan analyse a company’s shareholder base to assess how likely they are to respond to a campaign.
Pamela Codo-Lotti, head of cross-markets activism and shareholder advisory at Goldman Sachs, said she expected private discussions taking place between activists and companies to go public in the coming months.
“Since June there’s been a bit of change in psychology,” she said. “There have been a few campaigns and we’re hearing a lot of noise at the moment.”