Activist investors – don’t be surprised if they knock at the door
While shareholder activist campaigns globally have fallen 25% to 238 in the first quarter of 2020, compared to 2019, companies should not count them out. Several activists are raising funds to capitalize on market dislocation. And many, including the larger well-established firms, are thriving with large war chests and longer-term capital, compared with 2008.
EY surveyed 25 global activist investors in January 2020, and again in April 2020. The resulting data shows that the investor base will move at a faster pace, with a desire for corporate focus and simplicity. And companies need to prepare now.
This is evidenced by the 96% of activists who would now, post-crisis, recommend that a target company divest non-core or underperforming businesses, up from 64% previously. Their desired timeframe has also significantly shortened. Pre-crisis, 36% of activists said the expectation was that a divestment should take place within 6 months; this has now increased to 84%. Therefore, companies should prepare for investor discussions that focus on how they are responding to the crisis, aligning the portfolio to their core strategy, and other matters such as executive compensation alignment relative to company performance.
While we don’t know exactly what’s next and beyond the COVID-19 crisis, we do know that these trends are driving divestment strategy now. Strategic planning and plotting the continued course of transformation is on the agenda. So is strategically divesting to free up capital, build resilience and drive long-term value.