Corporate Insights The activism agenda:
What are activist investors looking for? 

The activism agenda:
What are activist investors looking for? 

(3rd Quarter 2016)

Themes

  • The evolution of activism
  • What do activists want?
  • What attracts activists in the first place?
  • A framework to monitor vulnerability

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Introduction

Carl Icahn, Bill Ackman, Dan Loeb and Nelson Peltz have become household names. To many CEOs and corporate boards, these investors represent an investment strategy that evokes unease, a strategy often viewed as creating distractions and which may lead to a public war of words and even struggle for control of a company. Icahn, Ackman, Loeb, Peltz and many others hail from the swelling ranks of investors collectively known as activists.

Activists take sizeable minority equity stakes in publicly-traded companies … and then they agitate. Their methods and objectives differ as widely as their personalities, but in general they seek change in these companies – the return of excess cash to shareholders, the sale of underperforming divisions, sale of the company, or outright change in the management team, the board, or both. Often they will do this in very public ways, with open letters to shareholders and public fights over board seats. Activists' stated purpose is to "unlock value" and ultimately earn "alpha" through their agitation. For this reason, they are sometimes called "value investors on steroids."

Although activist investors often promote themselves as being focused on value creation, we question the veracity of that in practice. In reality, the true intention of an activist is maximizing returns in the minimum amount of time. So it is questionable whether activists actually have the best interests of long-term shareholders in mind.

While there has been an awful lot written about activists in recent years, we offer a unique take on activism based on our proprietary HOLT framework which relies upon return on capital (CFROI) metrics. In this, the fourth in our ongoing series of Credit Suisse Corporate Insights, we trace the origin, development and current state of activism as a strategy. Our differentiated approach will help us explain what it is that most activists tend to target, especially considering returns on capital are a proven focus of activists. Knowing what these activists look for will empower our clients to better understand – and to anticipate – whether they may be vulnerable to activist attention and – if they are – to take steps to avoid or prepare for that unwelcome phone call or letter.