Consumer cyclicals most popular target for activists as funds boom

Shareholder activism attracted record funds during 2014, according to NASDAQ, which estimates that the industry now commands almost $300 bn in equity assets. In Q3 of 2014 alone, activist hedge funds saw inflows of more than $13 bn.

As well as highlighting a growing trend for SRI, CSR and corporate governance-focused activism (in addition to the traditional corporate raider-style), NASDAQ points to a shift in the industries facing the biggest attack from activists. In 2012 the technology sector was by far the biggest target with 75 campaigns, but that has now been overtaken by consumer cyclicals, with the industry facing 39 activist engagements over the last year, almost 30 percent more than the next most active sector (technology).

‘This is a trend we suspect [will] remain prevalent going forward as NASDAQ data shows consumer companies to be fielding a tremendous, near-record level of activist inquiries this year,’ write the authors of the Activist Landscape report. ‘This is an important development considering our data shows activists will attempt to speak with as many firms in a given sector as possible to have a clear understanding of industry dynamics and opportunity. The data looks to be signaling a clear shift in the focus of activists.’

The total number of shareholder activism campaigns has dropped across each industry over the past two years, however. ‘Our take is that activists are pushing up against larger and larger companies, which is making it a bit more difficult to maintain such a high number of campaigns,’ explains Tyson McCabe, senior director of advisory services at NASDAQ and lead author on the report. ‘[After] several banner years of activism we would expect that some of the lower-hanging fruit has already been pursued and the ability to find really solid ideas may not be as easy as it was.’

In terms of what activists want, leading the list of demands is board representation and ‘seeking alternatives’ – where there is a filing but no specific demand is made at the onset – with 52 campaigns focused on each of these areas in 2014.

NASDAQ also lists the top 10 ‘prominent activists’ of the last 34 months using data from Westlaw Business Currents. GAMCO tops the list with 23 campaigns, followed by Icahn Associates with 20, Clinton Group with 13 campaigns and Elliott Management with 11.

‘Names like Icahn and Elliott probably don’t come as much of a surprise, particularly given recent disclosures in automotive and across the networking space, respectively,’ write the researchers. ‘One would be surprised, however, to find a firm like GAMCO at the top of the list. Our research suggests a slightly atypical dissident behavior given the firm deploys a very particular brand of activism. Despite being the most aggressive in targeting companies, Mario Gabelli’s $42 bn firm tends to use activism as a means to hold management accountable for existing investments.’