Shareholder activism set to grow across Europe

A report by Alvarez & Marsal predicts a backlash against UK and European companies

Shareholder activism is set to grow across Europe next year – with UK companies predicted to face the lion’s share of investor backlashes, a new report suggests.

The latest activist report by professional services firm Alvarez & Marsal (A&M) shows a total of 158  European companies are currently at risk of shareholder activism, up from 150 in April 2019.

Of these firms under threat from public activist targeting, 54 are UK companies – as Brexit and a weakening sterling provoke greater interest in company buyout by activists.

While company underperformance remains a key driver for investor activism, the report highlighted that ESG factors will play an increasing role in shareholder rebellion in the year ahead.

According to A&M’s report – which did not name individual firms – companies ranked in the bottom 50% on ESG performance are on average 24% more likely to find themselves fending off an activist campaign.

In total, 62% of activist targets across Europe since 2017 fell into the bottom two ESG quartiles.

“Our report, now in its fifth edition, demonstrates for the first time the increasing importance of wider ESG issues for activist investors,” A&M said in the report.

“Whilst corporate governance has long been a focus for investors, and has been included in our analysis from the outset, wider environmental and social factors are fast becoming mainstream concerns among institutional investors.

“Our analysis identifies a compelling link between companies’ wider ESG ratings and their likelihood of becoming targets for activist investors,” A&M said.

Other countries predicted to be big activist targets include Germany (with 25 companies at risk of shareholder activism), France (24), Scandinavia (15), Benelux (11), Switzerland (11), Italy (11) and Spain (7).

In terms of sector, industrial companies top the target list, with 45 of these firms facing shareholder rebellion within Europe.

 “The industrials sector has become a magnet for activists. Many of its leading companies operate under a conglomerate structure, often reporting uneven divisional performance,” Malcolm McKenzie, managing director and head of European corporate transformation services at A&M, commented.

“At a time when private equity funds have record levels of dry powder to deploy, activists are well aware of the opportunities to spin-off underperforming business lines. Boards need to act fast in addressing such underperformance before the wolves come calling,” McKenzie added.

The report also noted that board diversity, such as greater age diversity and more women on the board, may be associated with a reduced risk of shareholder activism.

“Our research shows that age range and gender are two factors to consider when appointing directors. Boards that encourage diversity of thinking are likely to foster more resilient companies, armed with the right tools to stay ahead of the competition and avoid activist targeting,” McKenzie said.

A&M’s analysis focused on 1,771 corporates across Europe with a market capitalization of $200m and above.