Activism continues to fuel M&A, with breakups, divestitures and sales constituting the fastest growing type of requests by activists over the past five years by far. Activists are waging campaigns for deals even where regulatory concerns would normally be seen as a gating factor (Starboard/Office Depot, Elliott/Dollar Tree). We witnessed activists willing to confront even the largest companies and to engage on even signed deals (Elliott/Atmel, Icahn/Pep Boys).
In contrast to the “wolf packs” of old, activists no longer comprise only hedge funds but also family offices and traditional institutional investors. Moreover, activists no longer feel the need to acquire large stockholdings in order to push for their agenda. As a result, even the threat of activism plays a large role in boards’ review of strategic alternatives (both buy- and sell-side) on a more regular basis than in years past.
In a shift, boards’ reactions appear to have diversified from being solely defensive to more inclusive, with campaigns tending to settle relatively quickly and with about 36% (up from 30%) of all activist campaigns launched in 2015 resulting in board seat(s), according to FactSet Research.
Most companies by now have investor outreach efforts and corporate response strategies in place. Going forward—and particularly if private ordering for proxy access continues to swell—boards will need to focus on how best to govern their companies with dissenting voices in the boardroom. This will require attention, among other things, on board confidentiality and fiduciary duty issues related to the presence of dual-fiduciaries on the board and, potentially, managing and disclosing compensatory arrangements between the activist and its board member(s).