Investor activism in Europe to enter ‘golden age’

Investor activism is poised to enter a “golden age” across Europe next year, while low valuations and heightened environmental, social and corporate governance concerns mean that British companies are the most vulnerable targets, according to a new report.

In the next 12 months, 148 European companies are at risk of being targeted by activist investors, according to professional services company Alvarez & Marsal. This marks a 10 per cent increase from its last update in April 2021.

Britain remains the most attractive country for activists — which buy stakes in a company with the aim of influencing its management — with 36 per cent of the European companies identified as “at risk” based in the UK.

“The relative underperformance of UK corporates compared to their European peers is helping to make the UK a target-rich environment for activist investors,” said Malcolm McKenzie, managing director and head of European corporate transformation services at Alvarez & Marsal.

Brexit, the pandemic and supply chain disruptions have contributed to widening the gap between the best and worst performing UK companies, which in turns may help activists “identify perceived value opportunities,” he added.

Line chart of Change in number of corporates facing ESG activism (index, rebased) showing The increase in social and environmental demands

The report forecasts that activists will hone in on fewer but larger targets, while a growing focus on environmental and social performance increasingly drives campaigns. The number of attacks motivated by such concerns has more than doubled since 2018. This momentum is set to continue as the UK’s commitment to reach net zero by 2050 has put companies’ environmental and social credentials under more scrutiny.

Third Point has built a large stake in Royal Dutch Shell this year and called for the oil supermajor to break itself up. The activist hedge fund argues that Shell’s legacy business could handle fossil fuels, while a separate entity should focus on cleaner energy.

Activist investor Bluebell Capital Partners meanwhile last month called on commodities group Glencore to spin off its thermal coal business and “chart a new future” without coal, the world’s most polluting fossil fuel.

“The activists are supremely confident now,” said McKenzie, adding that no company is immune. The average market capitalisation of targeted European companies increased from €14.4bn in 2020 to €19.8bn in 2021. Other recent targets include Danone, GlaxoSmithKline and Europe’s biggest supermarket Ahold Delhaize.

Healthcare companies continue to be high on the activist hit list, said Alvarez & Marsal, with opportunities to drive improvements in bottom-line profitability and cash generation. Britain’s GlaxoSmithKline has been targeted by US activist Elliott Management, which has called for the pharma group to overhaul its leadership.

Private equity groups meanwhile have been snapping up UK companies at a record pace, fuelled by depressed valuations of public companies since Brexit and with buyout groups flush with cash.

In Britain, worries about tense UK-EU trade relations and concerns about the withdrawal of monetary stimulus could see recovery “entering a more difficult period” in the next year, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. She said it is “likely to keep a lid on valuations and see suitors for UK listed companies continue to circle’’.

Elsewhere in Europe, Alvarez & Marsal expects Germany to become an increasingly fertile ground for activism, overtaking France as the region’s second biggest activist market. The report benchmarked the performance of 1,651 listed companies in Europe to gauge their vulnerability to activists. According to the researchers, Germany’s weakened financial performance and declining average price-to-earnings ratio relative to European peers are contributing factors.


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