2021 Shareholder Activism Highlights – Corporate Law/Commercial Law
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“Anti” M&A activism
While the absolute number of companies publicly confronting activist demands for M&A transactions declined in 2021 compared to 2020, M&A activism accounted for an increased share of activists’ overall economic demands in 2021. Although the relative number of M&A activism has increased this year, the form of activism has changed significantly from past years. Many of the significant situations of M&A activism in 2021 have been reactive, that is, instead of pressuring boards to consider a deal, activists have responded to publicly announced transactions by inducing shareholders to vote against a deal, or for boards to increase transaction value or for boards to completely restructure transactions. Most of the anti-M&A activism has focused on pricing, with demands largely placed on small- and mid-cap companies. Activists have found far more success in 2021 in M&A activism than in previous years.
Part of this trend can be attributed to equity market volatility and increasing transaction multiples in M&A transactions. Private equity firms with abundant dry powder have pushed up asset valuations. Activist investors pounced on these frothy corporate values as proof that buyers in 2021 are ready to put additional capital to work to win support from key shareholders and secure the deal’s closing. As a result, fewer activists have put the companies on the line than in the past; instead, activists have generally waited to go public with the announcement of a strategic transaction.
Continued trend of activist as acquirer
Some activists have gained credibility as potential buyers of public companies in recent years – Elliott Management and Senator Investment Group are two notable examples of funds that have demonstrated a genuine desire and ability to acquire a public company (including by hostile measures). However, many market participants continue to question whether the “average” activist investor would be willing (or able) to put a significant amount of capital into a single asset for an extended period of time.
An interesting development in 2021 has been activist-led SPACs, offering activists the opportunity to become buyers in public deals. Some activists, including Third Point Partners, have gone so far as to raise capital specifically for PSPC investments. However, as is often the case with SPAC deals in general, activist-backed SPAC deals have come under scrutiny, including shareholder litigation (e.g., a deal involving Pershing Square) . 2022 should provide clues as to whether SPAC investment will provide activists with a continued opportunity to seek additional alpha or if it will just be a flash in the pan that will eventually give way to public investments more traditional by activist hedge funds.
Read the full 2021 transactional year review and 2022 forecast.
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