Evolution of Investor Activism: What’s in Store for 2024?

Shareholder activism campaigns continued to rise in 2023 as capital-raising and other growth avenues for issuers were disrupted. In our recent Evolution of Investor Activism webinar, our panel discussed major updates and trends within the world of shareholder activism. Our blog post below recaps a question posed to our panel about the investor activism outlook for 2024 and potential trends to watch.  

Christopher Stroh: “Activism in 2024 likely depends on the macroeconomic situation. If we see inflation and increasing interest rates further impacting the consumer, leading to a recession, I expect to see a drop-off in activism as investors pull back on deploying cash and new campaigns.” 

“If we continue to see a flat global or a potential growth in global economy, my expectation is that we will see activism focused on underperforming companies and sectors. Over the last year, we've seen several sectors in North America, on average, trading in the high single-digit valuation range, including energy, utilities, financials, and real estate. The overall market is, on average, trading in the 20x to 30x earnings range.” 

“Each of those sectors have their own unique reasons for relatively low valuations. But, between their strong cash flows, balance sheets, and continual low valuations, they may be strong targets for activists or activism. In the energy sector, specifically, we've seen large and mega-cap European energy companies trading in the low to mid-single-digit range [during 2023].” 

“I would be surprised if we didn't see an increase in activism in Europe and energy, specifically, based on their valuations relative to global competitors. That being said, the energy sector in North America has done a great job with their cash management since 2020, aggressively paying down debt, increasing buyback and dividend programs in order to return that excess cash flow to shareholders. However, they still aren't getting a full valuation relative to the rest of the market. So, we may see more of a focus on spinning off legacy or underperforming assets to attract new types of shareholders, as well as asset sales and larger-scale M&A in order to boost economies of scale and diversification.” 

Najy Nahkle: “Given the macro environment, I think activism is going to continue to play an elevated role in the market in 2024. The 13D Active-Passive Summit [took place recently], which is sort of the unofficial kick-off season for activism because a majority of the director nominations for publicly traded companies take place from December through February. There was somewhere around a dozen ideas that came out at the summit from these activist investors. Engaged Capital launched a campaign against North Face and Vans owner VF Corp. Nelson Peltz' Trian Fund built a position in Allstate. Jana Partners wants Frontier Communications to sell itself.” 

“Starboard Value has also been very busy. They launched a campaign against News Corp and at the summit, they disclosed a position against Fortrea, which is a spin-off from a health care company called Labcorp. My team actually identified Starboard as an activist to watch in the second quarter because they had sold down a portion of their position in Q2 within their equity portfolio. They had a massive stake in Splunk, who was purchased by Cisco, so they had about $1.3 billion of dry powder that they were looking to put to work. While we might not know which sector they're going to enter, we do know which activist is potentially going to be active, no pun intended, based on what they're doing within their equity portfolios through the 13Fs.” 

“The bottom line: based on some of the campaigns that we're seeing, we can safely say that size doesn't matter anymore when it comes to shareholder activism. As Ken mentioned, our data shows that over 50% of the activist campaigns in the first half of 2023 took place in companies with market caps of greater than $10 billion. In addition, 21% of the campaigns so far in 2023 took place in companies that are considered mega caps. Nobody is safe at this point.” 

“As we think about the macro landscape, inflation has proven to be stickier than many had expected, and the Fed has stated that interest rates are going to stay high for an extended period of time. If there continues to be a lot of volatility in the market, companies are going to have a tough time raising cash. Anybody that has a bad business strategy is going to potentially have a tough time financially engineering their way out of a bad business plan. I think those present a lot of opportunities for activist investors in 2024.”

Ken Shimokawa: “I agree with Najy and Chris. I'm really interested in looking at M&A activity. I think there are expectations that M&A is going to be a bit healthier next year. There were some significantly large deals, including several mega deals in health care and energy. The M&A environment could also be another factor that would impact the number of campaigns submitted. Whether that's partly related to the capital allocation or M&A [is] something I'll be keeping an eye on.” 

“I know we touched upon how there will be activists that are going to be collaborating and working together. A lot of the environmental and social campaigns were submitted by these newly founded or the first-time activists. I think one thing that I'll be curious to monitor is whether there will be potential partnerships or collaboration between those types of funds with your larger, established activists. I’m also interested if there will be any shift in trend and whether there's going to be a tie-in between the economics and the moral side of things when it comes to environmental and social campaigns.”