Investor Activism: Popular Misconceptions

In recent years investor activism has captured media attention and it is clear to see the effect it is having on the markets. For example, Pershing Square Capital Management’s activist campaign for Allergan saw Allergan’s stock price rise 87.5% from announcement to exit. But that kind of campaign is not always the norm. Using S&P Capital IQ’s Investor Activism database, I wanted to shine a light on two potential misconceptions:

  1. Big companies are exclusively the targets for an activist campaign
  2. Activist campaign always implies a hostile takeover

Large Cap companies usually grab the headlines in the media as the campaign tends to be more controversial and attention grabbing. However, looking at trends in investor activism over the last three years we see that when looking at activist activity by market cap, it is evident that Micro Cap companies are more heavily involved in activist campaigns than any other sized company. Graph 1 below shows the last 3 years of activist campaigns by market cap, broken down by ‘announced’, ‘withdrawn’, ‘settled’,  ‘successful’ and ‘unsuccessful’ campaigns. Over this period, Micro Caps have seen the most amount of activity with over 474 campaigns. By comparison, Large Caps have seen only 20% of that – 96 campaigns.

Graph 1 – Number Of Campaigns By Market Cap In Last 3 Years

Source: S&P Capital IQ platform, Market Overview, Investor Activism, 17th Feb 2015

This fact may be intuitive as there are more Micro Cap stocks than Large Cap stocks, but perhaps what is not so evident is the relative success of micro activist campaigns. If we compare ‘Successful’ against ‘Unsuccessful’ campaigns across Micro to Large Cap stocks, a clear relationship appears: the larger the capitalization of a company involved in an activist campaign, the more likely the campaign will fail. If we divide the number of ‘Successful’ campaigns by the number of ‘Unsuccessful’ campaigns, as shown in Table 1, we see that for every unsuccessful campaign there are 1.32 successful Micro Cap campaigns. This number is much lower for Large Cap; for every unsuccessful campaign there are only 0.43 successes. Perhaps the size and sophistication of Micro / Small and Mid Cap companies make them more amenable to activist investors, and the large companies have dedicated Investor Relations team and more resources to fight the activists? 

Table 1- Relative Success To Unsuccessful Campaigns In Last 3 Years

Source: S&P Capital IQ platform, Market Overview, Investor Activism, 17th Feb 2015

Finally, I want to take a quick look at another surprising trend; the types of activist investor campaigns. Many in the industry have heard of big deals like the ‘Proxy Contest’ of Microsoft and ValueAct Capital Partners in August 2013, and the ‘Proxy Fight’ of eBay and Carl Icahn in April 2014. However, there are many more types of campaigns and S&P Capital IQ categorizes the types into 9 different campaigns.  (For more info on investor relations data, click here) These types of campaigns fall under two main parent categories: confrontational and non-confrontational activist campaigns. The graph below shows the number of campaigns over the last three years for each of the nine different campaign types. The most successful types of campaigns in the industry, over the last three years, are two opposing tactics: “Non-Confrontational Communication and Engagement,” and “Threat to Launch Proxy Fight”. The former has 197 successful campaigns over last three years, while the latter has 103. Despite the focus in the media of proxy fights, non-confrontational communications are more successful and happen with greater frequency that one would expect by simply reading the papers. One last tidbit, “Takeover Bids,” as one would expect, have a very poor success rate, but actually get settled more than they fail. 

Graph 2 – Number Of Deals By Type In Last 3 Years

Source: S&P Capital IQ platform, Market Overview, Investor Activism, 17th Feb 2015

Through a quick look at our extensive database we can identify the real trends in the investor activist arena.

*This post was updated from its original published date on January 22nd, 2015

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