Carl Icahn and Bill Ackman might soon need some translators on staff. Both investors are activists, who take small stakes in companies and then agitate for changes that ought to boost share prices. It’s a tremendously popular strategy, and activist funds have seen assets under management balloon over the past five years. But that growth means the fund managers are bumping into one another as they hunt for targets.
“In the US market where activism is an accepted part of the investing ecosystem, activists are running the same screens and identifying the same targets,” Chris Young, head of contested situations in the M&A group at Credit Suisse, told Business Insider.
“They are not running into one another in a coordinated wolfpack fashion, but by accident. You get that crowded environment.” One recent example is Mondelez, the maker of Oreo cookies. Ackman recently unveiled a big position in the company, joining fellow activist Nelson Peltz. Bank of New York Mellon also found itself squeezed by two activists in quick succession, with Peltz’s Trian and activist fund Marcato Capital Management both agitating for change. One solution for activists looking for a unique target: To start looking abroad for new opportunities.
“That in turn, logic would dictate, means activists are going to look outside that crowded market, and allocate dry powder to other jursidictions,” Young said.
The numbers show what’s already underway: In 2015 so far, activists have targeted foreign companies 31 times – up from 17 in all of 2014 and a record high, according to Activist Insight. The number of international activist campaigns has risen every year from 2010 onwards, the data show.
- Activist Insight
That includes a number of campaigns elsewhere in the Americas, with activists targeting companies listed in places like Bermuda and Canada. But it also includes a number of European targets.
John Paulson’s hedge fund has tried to elbow Dutch drugmaker Mylan into the arms of a bidder. Nelson Peltz started pushing UK-based Pentair to start buying out rivals. Jeffrey Ubben’s ValueAct Capital is invested in Rolls-Royce Holding in the UK and have met with chief executive Warren East.
Dan Loeb has pursued campaigns in Japan, recently announcing a new investment in Suzuki, while Elliott Management this year fought a battle with the family dynasty behind Samsung.
“We’re seeing more and more of it,” said Ele Klein, partner and co-chair of law firm Schulte Roth & Zabel’s activism practice, adding that “it’s a slow build.”
There are obvious impediments. One is the language barrier, according to Klein. Then there are cultural differences, and differences in shareholder structure.
Corporate behaviour also differs. In the US it isn’t uncommon to see an activist load up on a corporate target’s shares and push for a buyback. That strategy might not be as prevalent, or as successful, in places like Europe.
“Dividend payouts are much, much higher in Europe than they are in the US,” Ben Laidler, HSBC’s global equity strategist and head of Americas research, told Business Insider.
Then there are macro-economic issues. Many activists consider Europe to be a target-rich environment, but the eurozone crisis stymied activist campaigns in the region. As the region gets back on its feet, activism could pick up there.
“I see Europe as the next place that gets significant growth,” said activist adviser Steve Wolosky, a partner at law firm Olshan Frome Wolosky. Olshan has worked on more than 50 activist campaigns so far this year.
“There’s going to be a lot of activity going over there.”
- REUTERS/David Moir
The activists will likely have to adapt their playbook: What works in the US won’t necessarily work in the UK or in Australia or in Japan. Activists are much more likely to operate behind the scenes outside the US, exhorting company management to change strategy in private.
Global companies are alive to the threat, and are much more open now to hearing about activism and its leading protagonists than in the past, according to Young at Credit Suisse.
“Corporates in Japan, Korea, Hong Kong and Australia are much more interested in getting to know more about activism and how it may take shape in their home markets,” he said.