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Executive summary
Six themes summarising predicted shareholder activism in
2023
A wave of activism is on the horizon – From its
current suppressed levels, European activism will surge as we move
through 2023.
The tenth edition of the Alvarez & Marsal Activist Alert
(AAA) highlights six major themes that summarise our predictions
for investor activism in 2023 and into 2024.
01. The predicted wave of activism will be partly driven
by new entrants
Analysis of the activist fund universe reinforces our prediction
that the current suppressed level of activism is temporary. In
spite of the drop in the number of campaigns during 2022, we see a
steady increase in the number of funds using activist strategies
targeting European companies. Alvarez & Marsal is currently
tracking 96 such funds, up from 93 in 2021 and 89 in 2020. Our
analysis of these funds shows that the early dominance of US-based
activist funds is giving way to a growing band of European funds,
especially funds based in the UK. We also note the small but
growing number of funds based in Asia/Pacific that are now
targeting European companies.
The use of public activism as a tactic is gaining ground among
investors, and we predict that the number of funds willing to
pursue activist campaigns will continue to increase. With a growing
number of funds circling the market for opportunities, there will
be more pressure on corporates and their boards as financial
visibility improves and activists decide on their targets.
HQ of funds adopting activist tactics against European
corporates – Numbers by year
02. No pause in environmental and social
campaigns
In contrast with the current suppressed levels of activism more
broadly, environmentally and socially-focused campaigns show no
signs of slowing down. Our predictions suggest that the number of
environmental and social campaigns will continue to increase
throughout our forecasting period (2023 and into 2024). However, we
believe that tough economic conditions will encourage more
investors to focus on shorter-term financial performance, making it
more challenging for activists to generate wider shareholder
support for longterm environmental and social goals. Successful
campaigns will need to strike a careful balance between their
ultimate priorities and the more immediate financial concerns that
are top of mind for most investors.
Although the absolute number of “E&S” campaigns in
Europe is relatively low, at the current run rate we could see a
22% year-on-year increase in the number of environmental campaigns
during 2022 and a 14% increase in socially focused activism.
Notable examples include Bluebell Capital Partners’ campaign to
persuade Glencore to divest its brown coal assets and
ShareAction’s effort to push J. Sainsbury to pay all its staff
and contractors the UK Living Wage.
03. Financial visibility will improve through 2023
granting activists greater insights into preferred
targets
Acute economic uncertainty and the resulting lack of visibility
for corporate boards is giving activist investors temporary pause
for thought. War in Ukraine has created a global energy shock and
helped to push inflation across the industrialized world to 40-year
highs, leading central banks to accelerate interest rate rises.
Against this backdrop, the immediate outlook for companies across
Europe and beyond has become unusually difficult to predict and
activists are therefore watching and waiting longer before
launching campaigns. In the first nine months of 2022, 13% fewer
European companies were targeted than in the same period in 2021.
In some regions, the falls were much sharper: 31% in Scandinavia,
for example, and 28% in Benelux.
We believe the current suppressed levels of European activism
will continue at least into the early part of 2023, with a strong
resurgence of activism expected later next year and into 2024.
Europe is therefore in a trough between waves of activist
campaigning, providing underperforming companies with limited
breathing space to address their challenges before pressures on
them ramp up again. There are already signs that activism is set to
rebound. Our latest predictions find a fall in the number of
European companies at risk of activist campaigns of just 7%,
compared with our interim snapshot in May 2022. This suggests that
the 13% drop in campaigns in the first three quarters will moderate
and reverse in the coming year. Overall, we have identified 144
European companies at risk of activist campaigns over the next 18
months, down from 155 in May, but with the rate of campaign
launches building as we move through 2023.
04. Rising cost of capital will drive capital
reallocation demands
With central banks in the US and Europe raising interest rates
aggressively, the cost of capital for corporates has been rising.
This will inevitably increase the pressure from activists for
boards to improve capital allocation as well as encouraging a focus
on asset-light operating models. We expect growing pressure on
boards to lift returns on invested capital and, where companies
fail to deliver on this, public calls for underperforming
businesses to be sold and/or for capital to be returned to
shareholders. However, a higher cost of capital will also increase
borrowing costs for potential acquirers.
05. Low valuations will drive demands for
M&A
Low valuation multiples will continue to offer M&A
opportunities and associated demands from activists for corporates
to seek buyers for underperforming business units. The increased
cost of capital may reduce the number of potential buyers, but we
predict that there will be sufficient interest, notably from
private equity funds, to encourage activists to push for sales, or
indeed acquisitions when prices fall to attractive levels. We will
also see activists pursuing so-called “bumpitrage”, where
they pressure corporates to demand improved offers from potential
acquirers of target businesses.
06. Spotlight on consumer and energy
sectors
We predict that activist campaigns will increase their focus on
the consumer and energy sectors as we move through 2023. While
overall we find a 7% drop in predicted targets since our interim
snapshot, the number of consumer companies identified as being at
risk has dropped by just one, from 32 to 31, while the number of
energy companies has risen from eight to 10. In keeping with our
prediction that a wave of activism is on the horizon, we see the
levels of public activism in these sectors building as we move
through 2023.
Our analysis shows that consumer companies focused on household
and personal products, packaged foods and apparel are particularly
at risk, partly because they have failed to match their success in
protecting revenues by sustaining margins and cash generation. The
energy sector has the biggest percentage growth in the number of
predicted targets, thanks both to growing environmental activism
and pressure to justify capital allocation decisions during a
period of rapid revenue growth. Energy companies must balance
demands for greater shareholder returns in the near-term against
expectations that they should accelerate investment in
renewables.
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