Coiled spring: Activist campaigns bounce, driving hopes of M&A rebound

Data Insight Dealspeak 27 February

Coiled spring: Activist campaigns bounce, driving hopes of M&A rebound

European M&A practitioners have had to deal with plenty of doom and gloom in 2022, but there is a bright spot on the horizon - shareholder activism is booming and this could serve as a rebound catalyst for dealmakers.

Activism was relatively dormant during the first phase of the COVID-19 pandemic. “Some saw it as a coiled spring waiting to be unleashed, and that’s what we saw going into 2022,” said Christopher Couvelier, head of European shareholder advisory at Lazard. Falling valuations in sectors such as technology have provided attractive entry points, he said.

Some 63 new campaigns were launched in Europe in 2022, according to data from Activistmonitor. This is up from 39 in 2021.

Campaigners haven’t just focussed on tech companies that are over-promised and under-developed, though. European blue chips have also come into focus.

Activist hedge fund Elliott reportedly pushed for restructuring at German healthcare group Fresenius [ETR:FRE] last year, while Atlas Investissement wants UK telco Vodafone [LON:VOD] to divest assets, and Petrus has suggested Swiss IT firm Temenos [SWX:TEMN] put itself up for sale.

The trend continues – Europe saw 10 new campaigns in January alone, according to Activistmonitor data, including several activists swarming German chemicals group Bayer [ETR:BAYN]. This represents only the third time since the start of 2021 in which campaigns reached double-digit figures.

Activism isn’t just a big deal in Europe. It is surging elsewhere too - North American campaign starts increased 49% last year as reported.

Lean, green activism machine

Activism might conjure up images of battle-hardened corporate raiders. In reality, though, “first-timers” launched 36% of last year’s global campaigns according to Lazard, from 28% in 2021.

One theme involves investors with environmental, social and governance (ESG) concerns getting active. The next big European campaign might well be launched by green investors targeting a carbon-intensive business.

In the meantime, M&A-focused objectives such as breaking up a company or getting it sold, remain most common. Some 41% of global campaigns last year related to M&A according to Lazard, well ahead of objectives like board representation, capital allocation and operational changes.

Wolves at the door

“A further increase of activism is expected for 2023 and beyond,” said Linklaters’ European head of Corporate/M&A, Kristina Klaaßen-Kaiser. Industries such as consumer goods, energy and chemicals will see continued macroeconomic disruption and re-valuations, and activists will pressure corporates to strengthen and streamline their businesses, she said.

Indeed, several European companies look like potential targets – for activists or for acquirers who see potential campaigns as a catalyst for pre-emptive action.

As for potential activist-induced M&A, KKR [NYSE:KKR] and Nordic Capital have studied offers for the above-mentioned Temenos, as reported by this new service. And Swiss travel website [SWX:LMN] might come into play following a Dark Horse Capital campaign while UK energy group SSE [LON:SSE] could consider carve-outs amidst pressure from Elliott, according to our friends from the Morning Flash.

Other companies could make logical targets for fresh activist campaigns, such as UK-based analysis firm Experian [LON:EXPN] and flavouring provider Treatt [LON:TET], according to the Morning Flash.

European corporates should take heed of the wolves at the door. “Detailed preparation and a clear defence strategy in particular when it comes to hostile takeovers are best done at a stage where no activist has yet started to engage,” Linklaters’ Klaaßen-Kaiser said.

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