DealLawyers.com Blog

June 2, 2023

Findings from New Shareholder Activism Study

In an HLS blog post, Goldman Sachs presents findings from a recent analysis of activism against Russell 3000 companies with campaigns launched from 2006 to the first quarter of 2023. The analysis was conducted to better understand what changes activists seek, what metrics suggest company vulnerability and how a company’s stock price performs after a campaign. Here are some of the key findings relating to vulnerability and activist agendas:

We identify four metrics relative to the sector median that are associated with an increased likelihood of becoming an activist target: (1) slower trailing sales growth, (2) lower trailing EV/sales multiple, (3) weaker trailing net margin, and (4) trailing 2-year underperformance. Note that low realized sales growth relative to the sector median is the metric most associated with a target company’s share price outperformance following the launch of an activist campaign.

…The most frequent activist investor demand involved in 28% of campaigns since 2006 has been for companies to separate its business. Other common demands include (1) review strategic alternatives (19%), (2) return cash to shareholders (12%), (3) block a proposed merger or acquisition (12%), (4) become a target of a potential acquisition (10%), and (5) increase or decrease leverage (7%). 

While the pace of activist campaigns surged in 2022 and moderated in 2023 to date, the post identified one changing trend that may be related to universal proxy – or at least companies’ fear of its potential consequences:

One interesting development in 2023 has been the speed of capitulation by management teams. In several high profile attacks, companies have announced their intention to implement several of the actions proposed or advocated by activists, thereby nullifying the need for those investors to continue to agitate for change.

– Meredith Ervine