London, 6 December 2021 – Global professional services firm Alvarez & Marsal (“A&M”) today announces the findings of its latest analysis and predictor of shareholder activism in Europe in 2022, the “A&M Activist Alert”, or “AAA”. 

The outlook forecasts a “golden age” for activism in Europe, with 148 companies at risk  of activist attacks in the near-term. The number of corporates at risk of being targeted by an activist in the next 12 months has increased by almost 10% since A&M’s April 2021 update.

In this target-rich environment, the U.K. remains the most attractive target, with 21 U.K. corporates predicted to face a public campaign by an activist investor in the next 12 months. This is the highest number across the European markets that were analysed. The heightened interest from private equity firms in U.K. corporates is expected to give rise to more “bumpitrage”, the strategy often employed by activists to push for higher offers from would-be acquirers, as witnessed in the recent battle for Wm Morrison. 

In 2022 and beyond, A&M forecasts that activists will focus on fewer but larger targets. Predicted targets over the next 12-18 months have a greater average market cap (€20.2bn) compared to 2020 (€12.3bn) or 2021 to date (at €16.9bn). Throughout 2021, the activists’ average holding period grew by 18% in Europe as activists sought longer-term value creation and greater returns, a trend that is set to continue.

Malcolm McKenzie, Chairman, A&M Europe Corporate Transformation Services, said: “Challenges like the COVID-19 health and ensuing financial crisis, Brexit and supply chain disruption have widened the gap between the best and worst performing corporates. As we gradually emerge from the crisis with greater visibility into the winners and losers, activists will have a much greater ability to identify perceived value opportunities. They will be focusing on bigger targets and investing for longer.”

Rise in environmental and social demands

• Corporates with lower environmental and social scores continue to be more likely to be targets by activists, with the number of “E” and “S” campaigns increasing 2.5x between 2018 and 2021.
• The growing number of ESG-focused campaigns, combined with the trend towards bigger targets, has helped to drive multi-activist attacks. European corporates being targeted for financial or operational underperformance now have a greater chance of also being targeted by a different activist with “E” and “S” demands. In 2021, the likelihood of targeted corporates also receiving additional E and/or S demands has been 37%, up from 14% in 2020 and 9% in 2018.
• Over the same time frame, the number of governance-focused campaigns in Europe fell by one-third. 

Malcolm McKenzie, Chairman, A&M Europe Corporate Transformation Services, said: “Boards are now facing the prospect of multi-activist attacks and are unable to unravel a Gordian knot of multiple demands. As COP26 in Glasgow moves to COP27 in Sharm-El-Sheikh, even brighter lights will shine on polluting and anti-social behaviours and those corporates considered complicit. The potential for reputational damage and subsequent financial damage has never been higher. Equally however, nor have the opportunities for those corporates seen as truly leading the way as beacons of ESG performance.”

Regional trends

• The AAA predicts that U.K. corporates will remain highly attractive to activists, accounting for 36% of European corporates identified.
• This ongoing activist interest in the U.K. is thanks in part to lower PE ratios which offer opportunities for acquirors and for activists to make their opinions heard on the prices being offered, also known as “bumpitrage”. The growing interest from private equity funds in U.K. companies will continue to help drive activist activity in 2022, predominantly in the consumer, industrial, healthcare and tech sectors.
• Continental Europe continues to offer activists a wide choice of potential targets, with German corporates at greatest risk behind the U.K. The number of companies in Germany predicted to face public activist campaigns during the next 12 months has grown from 22 in April 2021 to 27 now. Germany is seeing the biggest increase in predicted at-risk companies among the markets analysed as part of the outlook. 
• France has fallen into third place behind Germany, with 23 predicted targets. 
• Malcolm McKenzie, Managing Director and Head of European Corporate Transformation Services, said: “The relative underperformance of U.K. corporates compared to their European peers is helping to make the U.K. a target-rich environment for activist investors. Similarly, activism is increasingly becoming an accepted part of corporate life in Germany, with international funds now regularly joining domestic activists in targeting corporates where they identify value opportunities.

Sector and developing trends

• With a consumer-led recovery expected in the aftermath of the pandemic, consumer companies will be increasingly targeted, with 13 predicted targets, up from 11 in April 2021. The outlook suggests a continued interest in branded products, apparel, leisure, luxury and media companies, as well as a renewed interest in traditional retailers. Over recent years, high street retailers have traditionally been avoided by activists due to their acute structural challenges but are now predicted to be an increasingly viable option. 
• Healthcare companies continue to be high on the activist hit list, with 18 targets predicted to be at risk. The sector has performed well but greater activist scrutiny will highlight areas for improvement, notably bottom-line profitability and cash generation. 
• Although the number of technology companies at risk has fallen from 29 in April 2021 to 22 today, the sector remains at significant risk of activist attacks. Opportunities to achieve a re-rating, either through demergers of tech-focused divisions or via a relisting, is one potential route predicted to attract increased activist attention.

Malcolm McKenzie, Chairman, A&M Europe Corporate Transformation Services, said: “Parts of the consumer sector, like physical retail, have been largely overlooked by activists in recent years due to structural challenges. The prospect of a consumer-led recovery from the pandemic means that activists will likely find more opportunities in traditional ‘bricks and mortar’ retailers as we move through 2022.” 

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Notes to Editors

A&M Activist Alert

A&M’s Activist Alert model is based on an extensive and rigorous analysis of activist activity in eight European countries and regions from 1 January 2015 to 31 October 2021. The latest analysis includes the U.K., Germany, France, Scandinavia, Switzerland, Benelux, Italy and Spain. We gather data via the A&M Global Insight Centre on corporates listed and headquartered in those countries or regions with a market capitalisation of $200 million or more.

The total number of European companies analysed for this Outlook was 1,651. Importantly, as part of the analysis of these European corporates, their performance across a wide range of metrics was compared to their global peers. Taking this global comparative analysis into account, we analysed a total of 3,881 corporates. Building on this global comparative analysis, our research team analysed 218 situations in which activist investors had made public demands to European corporate boards. We then compared those 218 publicly targeted companies with the 1,433 European corporates in this analysis which had not experienced such activist campaigns.

We have focused solely on public campaigns because we cannot track private discussions between boards and activist shareholders in a robust and consistent way. In addition, private campaigns do not bring a high level of financial and reputational risk to the target company that comes with public campaigns.

Key findings 
 

Red and Amber Lists

The AAA model calculates a score for all analyzed corporates that predicts the likelihood of public activist action. Companies with high AAA Scores, and therefore with a higher predicted likelihood of public targeting, are classified as either Red or Amber alerts. These classifications are based on the AAA Score calculated on two bases: firstly an analysis of the past two years performance and, secondly, a “leading indicator” analysis focused on the past one year’s performance.  

Corporates with high AAA Scores on both the two year and one-year bases are considered to be at high short-term risk (next six to 12 months) of public activist action and may already be subject to non-public approaches. Such high-risk corporates feature on the Red Alert list. Companies with a high AAA Score on either the two year or one year basis are likely to be being monitored by activists. Such companies are considered to be at medium risk which will only increase if corrective action is not taken within 12 to 18 months. Such medium risk corporates feature on our Amber Alert list.