The activists are coming: Why London-listed firms are worrying about more than just takeovers
Activist investors are gearing up for an offensive in London, and boardrooms across the City are scrambling to shore up their defences.
In October last year, one New York hedge fund revealed a stark and telling bet on the UK’s public markets.
Saba Capital, an investor with some $4.4bn assets under management known for waging campaigns from its Chrysler building HQ, had amassed positions in 11 different London-listed investment trusts in the previous 12 months.
The price dislocation in UK-listed investment trusts is well covered. Scores of London-based vehicles are trading at heavy discounts to the value of their portfolios, and Saba itself has already launched a public campaign against the European Opportunities Trust in October.
But the scale of its bet may signal a looming headache for boardrooms across the Square Mile in the coming year: activist investors are on the march.
Activists typically build stakes in companies before emerging with a list of demands they argue will boost the value of companies. London has played host to a range of high profile battles in recent years with Vodafone, GSK and Aviva all falling into the sights of investors due to a perceived underperformance in their share price.
While sluggish valuations have spread fears of a wave of take-private deals, analysts and lawyers are warning that activist campaigns could be just as likely. And boardrooms, they say, need to begin bolstering their defences.
“I think you will see an increased level of activism,” Laura Ackroyd, a corporate lawyer at Herbert Smith Freehills, tells City PM. “All the big names will be active, but also some shareholders that have become more activist in their approach.
“So not big names, but shareholders that have held a stake for a long time and now want something to happen, so they sort of switch modes. That level of activity has definitely gone up.”
Discontent from shareholders not typically considered activists may be triggered by fewer takeover bids going through, Ackroyd adds. While forty firms were picked off from London’s markets in takeovers last year, many also fell apart on the gap between buyer and seller price expectations.
Apollo for instance launched a series of bids for Wood Group and THG, the now-owner of City A.M., but the efforts were rebuffed by boards for undervaluing the firm. THG has since faced a pressure campaign from activist Kelso.
In a report earlier this month, the consultancy firm Alvarez & Marsal found that companies in the UK last year faced 59 campaigns from activist investors last year, up from 55 in 2022. That number, they said, was set to rise with the UK retaining its unwanted title as the “preferred hunting ground for activists”.
“The UK market in particular has a significant valuation gap compared to its global peers, leaving more room for both M&A and activism in 2024,” said Malcolm McKenzie, a managing director at Alvarez & Marsal.
In a mixed blessing for boardrooms, the campaigns have also borne fruit. UK firms targeted by activists have outperformed the market by nine per cent, Alvarez & Marsal found.
The strong track record of activists and the opportunity presented by London’s discount are mixing into a cocktail of pressure for bosses. And similarly to the predicted flurry of unwanted takeover bids, most in the City are expecting pressure to come from across the Atlantic.
“UK public companies, especially those with diversified portfolio businesses or facing depressed valuations, should prepare for possible activist approaches from across the pond,” Mark Austin, a capital markets lawyer at Latham & Watkins said over the weekend.
A report by his firm this month warned the UK was a “fertile” market for activists and seasoned US investors with a “track record of success are turning their attention to UK plcs”. Firms need to get their ducks in a row while they still can, they warned.
“UK plcs and their advisers can no longer wait for an activist approach before running the different analyses that show management is steering the right strategy,” Latham & Watkins said. “Boards of UK plcs must regularly consider with their management team how vulnerable they are (in particular as compared to peers) and how viable their stated strategies will be when faced with activist criticism.”
While private equity firms are said to be limbering up for a bargain hunt on London’s markets this year, campaigns from vocal activists may mean boardrooms are fighting on more than one front.