As stock markets tumbled in 2022, the number of companies targeted by shareholder activists shot up.
Activists initiated 164 new campaigns in 2022, an increase of 49% year-over-year, according to ActivistMonitor data. This compares to 110 campaigns in 2021 and 167 in 2020.
In the fourth quarter alone, Alphabet [NASDAQ: GOOGL] was targeted by Altimeter Capital, The Walt Disney Company [NYSE:DIS] triggered further interest from Trian Fund Management to add to Third Point’s earlier engagement, while Fidelity National Information Services [NYSE:FIS] drew the attention of JANA Partners.
Software companies were of particular interest in 2022 for activists, making up 24 of all campaigns. Contractions in valuations, cash flow generation and the inflow of capital into private equity funds all helped support interest in the sector. Internet and e-commerce companies helped sustain activity, accounting for 11 campaigns during the year.
Software rules
Salesforce [NYSE:CRM] is proving to be very popular among activists, attracting four in total. The cloud-based software company received a call from Starboard Value in October 2022, after which Inclusive Capital and ValueAct Capital Partners disclosed stakes in the company and Elliott Management was reportedly prepping a board slate.
What drives activist appetite are the hefty new raises by private equity firms, which provide an easy pathway for activists to visualize an exit. One such is Thoma Bravo, a software and technology-focused private equity firm that raised a record-setting USD 24.3bn in December.
Another software firm in the crosshairs is Blackbaud [NASDAQ:BLKB], whose current standoff with Clearlake Capital is expected to come to a head this year. Work management software firm Smartsheet [NYSE:SMAR] and Blackline [NASDAQ:BL] also may draw greater interest from activists as the year progresses.
Biotech warfare
Biotech activism had a noticeable pick-up last year. The uptick came in conjunction with a steep selloff in the sector due to retail investors churning out of the space post-pandemic, a series of high-profile clinical failures, commercial hiccups as well as saber-rattling from regulators.
Amarin [NASDAQ:AMRN], Zymeworks [NASDAQ:ZYME] and Alkermes [NASDAQ:ALKS] all came under fire. With nearly a third of biotechs trading below cash on hand early this year, there’s every reason to expect investor scrutiny in the sector to continue in 2023.
Future pathways
Several companies that went public via a special purpose acquisition company (SPAC) are now trading underwater. Some are being targeted by activists. A case in point is the de-SPAC’d company Vertiv Holdings [NYSE:VRT], in which Starboard unveiled a stake in October.
In a less risk-averse approach to campaigns, utilities and regulated industries are expected to remain attractive campaign targets, advisers note. Elliott continued to execute on this strategy initiating campaigns at Suncor Energy [TSX:SU,NYSE:SU] and NiSource [NYSE:NI] last year.
In early 2023, small and mid-cap companies have been very hard hit by the current tightening credit cycle and represent an “extraordinary embedded opportunity”, one activist says. Another activist highlights companies sensitive to the economic cycle and telecom and cable operators as prime targets given many have been oversold during the Covid hangover.
As one activist puts it, while 2022 was a year of initiating campaigns, 2023 will be a year of executing them, hopefully with the helping hand of a more open credit market.
