BY Richard Summerfield
Shareholder activism is increasingly widespread. No longer just a niche tactic employed by a small number of hedge funds, it is becoming more mainstream, according to a new report from J.P. Morgan Chase on the 2017 proxy season.
The report, ‘The 2017 Proxy Season – globalization and a new normal for shareholder activism’, notes that while the 2017 proxy season began slowly, it ended with a number of high-profile, mega-cap campaign announcements. Yet, surprisingly, the number of activist campaigns recorded during the proxy season was flat. According to the report, this paucity of activity is not indicative of a decline in the popularity of activism but rather demonstrates activism's metamorphosis into a more commonly accepted practice.
“Investors around the globe continue to use activist tactics to bring about change,” the report notes. “As a result, shareholder activism has become an accepted strategy across global markets, even in regions once believed to be hostile or structurally difficult for campaigns. After several years of growth, global activist campaign volume dipped by 6 percent in 2017, with nearly every region experiencing a modest decline in new campaigns, year-over-year. The US market, in particular, seemed to settle into a ‘new normal’ of campaign volume, accounting for 54 percent of global volume, as the strategy gains footing in international markets.”
Globally, there were 606 activist campaigns in the year to 30 June. The US saw the lion’s share of activity, with 327 campaigns. Of those, 68 proxy contests were launched during the 2017 season, 54 of which had been completed by 30 June.
Nineteen percent of campaigns in the US were launched by first time activists and nearly two-thirds of all 2017 US campaigns targeted companies with market caps below $500m. Smaller funds were most active during the 2017 proxy season, focusing on smaller-cap companies.
The report also claimed that institutional investors are increasingly turning to activism. As activism has matured as a strategy, traditional long-only funds have begun to embrace it. Actively managed funds displayed a willingness to publicly support activist campaigns and also partnered with activists to target one of their portfolio companies.
M&A focused activism has also become prevalent in recent years. Five hundred M&A-related campaign demands were made by activists globally during the 2016 and 2017 proxy seasons, which accounted for approximately 75 percent of total value demands for that period.