Corporates beware: UK companies are a third more likely to be targeted by activist investors than their European peers

 
Lucy White
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There is little shelter from activists for UK companies, as the time scale is decreasing for them to address underperformance (Source: Getty)

After a year with a number of activist shake-ups in the FTSE 100, a new report has revealed that UK companies are 32 per cent more likely to be targeted by activist investors than their peers in other major European markets.

The number of UK companies predicted to be at risk of public activist targeting has increased from 52 to 54 over the past three months, according to advisory firm and turnaround specialist Alvarez & Marsal (A&M).

Read more: Nestlé shares rocket after Daniel Loeb's activist fund Third Point targets the KitKat maker

This comes despite eight UK businesses having been targeted by activists over the past quarter, five of which were correctly predicted by A&M in their last analysis.

“Activists are familiar in the UK market, where there's more history of activism. The way the UK corporate governance environment works means the UK is also a lot more shareholder-friendly,” said A&M's managing director Malcolm McKenzie.

“It's much easier to call an EGM [extraordinary general meeting], and there are more votes on reelections of directors compared to Germany, for example, where directors are only reelected every five years.”

Despite the attractiveness of the UK to activists, certain European markets are also seeing an uptick in interest. The Belgium, Netherlands and Luxembourg (Benelux) region is also relatively at-risk, perhaps prompted Elliott's high-profile interference with Dutch paints company Akzo Nobel earlier this year.

Read more: Activist investor Elliott makes new demands of Dulux maker AkzoNobel after being stood up

“It's interesting how, as activism is becoming more accepted culturally, it is growing. Activists are becoming more attuned as to how to target their programmes to be aligned with cultural sensitivities in the countries,” said A&M's Paul Kinrade.

Since more run-of-the-mill investors are currently desperately hunting for yield, they may be easily persuaded to get on-side with an activist who says they have a plan to improve the business, Kinrade added.

The research also shows that European activists are on the march, in a market which has been traditionally dominated by US players, as more money pours into the niche.

European funds currently account for approximately 26 percent of global activist or event-driven funds, up from 22 percent in 2016.

The number of women on a board also seems to be associated with a reduced risk of shareholder activism, according to A&M.

“I think it's really about diversity of thinking,” said McKenzie. “If you've got a more diverse board in various ways, and gender is just one way of looking at it, then you get a greater diversity of thinking and more of a challenge to ideas.”

This might be one quick way help allay activists' concerns – which is lucky, since it seems boards are being granted less time to address underperformance.

The average time between first evidence of underperformance and public activism has reduced from two years in 2016 to 1.9 years in 2017, A&M found.

A&M's study analyses 1,564 corporates valued at more than $250m (£184m) across the UK, Germany, France, Switzerland, Scandinavia, Benelux and Italy.

Its model has successfully predicted 58 per cent of corporates publicly targeted by activists since January 2015, and any company which wants to find out its position on the list can contact A&M.

Read more: Activist investor Chris Hohn tells Safran chairman: Pull €8.5bn Zodiac deal or we'll try to oust you

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