When Everyone’s a Potential Activist
We were delighted to partner with Insighta for their 2021 Shareholder Activism in Europe Report.
Among the key themes of ESG, M&A, and IPOs, activism from across the investor and stakeholder spectrum is a common thread, writes Ed Bridges, senior managing director at FTI Consulting.
For many companies, and especially consumer facing ones or those in consumer companies’ supply chains, 2020 was a year for surviving. As companies sought to batten down the hatches and shore up balance sheets, the scope for value generating activist campaigns was limited and the number of public campaigns is down significantly. For any activist – or any shareholder or stakeholder for that matter – investing in a period of so much uncertainty was problematic.
But 2020 also provided some insights into what the future of activism could look like for many listed corporates.
Companies have already been preparing to meet the ESG demands of passive funds and the Task Force on Climate related Financial Disclosures (TCFD), preparing reports that disclose their policies, strategies, and key performance indicators. But expectations continue to increase; the likes of BlackRock have served notice that they intend to be extremely active in the area of ESG, leading to some awkward conversations with boards, while proxy advisory and ratings services have created occasional surprises when comparing competitors on a range of criteria.
But the new activists and increasingly powerful players in M&A are Governments.
M&A activism, including calls for strategic reviews and breakups, will continue, albeit possibly muted by the broader economic recovery. Such campaigns have been popular in recent years, especially from U.S. hedge funds. But the new activists and increasingly powerful players in M&A are governments. Most countries have had formal or informal legal frameworks through which to intercede in nationally important or competition-sensitive M&A for decades. But some are busy creating new, formal and coherent frameworks, emulating The Committee on Foreign Investment in the United States (CFIUS). For example, the U.K.’s National Security and Investment Bill is likely to pass into law in the autumn of 2021 but grandfathered back to late 2020. Advisers to significant and relevant M&A transactions are already interacting with the U.K.’s Department of Business, Energy & Industrial Strategy to seek guidance and assurance that the relevant civil servants and politicians are kept informed to avoid surprises at a later date.
ESG is not something that can be ignored and then ‘fixed’ post-listing.
And finally, a word on IPOs. For “disruptive” companies listing on stock exchanges for the first time, ESG has become key and the recent experience of Deliveroo in London gives a sense of the direction of travel. ESG is not something that can be ignored and then “fixed” post-listing. As cash shells, special purpose acquisition companies (SPACs) have the advantage of having no immediate ESG issues on listing but if there is an ESG issue sitting at the heart of a business model, it is a thread that will be picked at and in some cases, could cause the entire transaction to unravel.
Fear is a compelling driver of executive behavior and the activists’ main point of leverage. Careful analysis, preparation, and thinking by boards are needed to navigate the activist landscape. Often that can involve facing up to some difficult truths. But in creating strategic pathways that generate long-term shareholder value, it could hardly be more relevant in a world where almost every investor, including so-called passives and other stakeholders have the potential to become an activist.
Identifying vulnerabilities is just the beginning
FTI Consulting does more than just point to vulnerabilities. As the activism landscape evolves to include not just shareholders, but governments and other non-financial stakeholders, we help clients navigate through a complex set of challenges to develop successful long-term strategies and protect against activism risk.
With decades of experience and subject matter expertise in stakeholder activism and investor stewardship, our team helps clients develop winning strategies in today’s complex and challenging activism environment. FTI Consulting’s advisory services are focused on building trust and securing support to help our clients advance their long-term objectives.
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