Is Your Company Ready For An Activist
Mar 31, 2023,07:00am EDT
Moira Conlon is the
founder and CEO of Financial Profiles, a national strategic
communications firm that builds long-term corporate value.
has been around for so many years now that it continues to amaze me
when companies are surprised and unprepared when an activist attack
there were 235
shareholder activist campaigns at
companies with market caps over $500 million, a 36% increase from 2021
and the busiest time for activists in the past four years. Those
numbers are expected to rise significantly in 2023 as companies face
myriad challenges, including low valuations, fears of a recession,
inflation, higher operating expenses, rapidly rising interest rates,
continued market volatility and limited access to attractively priced
debt and equity capital.
same time, the activism landscape continues to evolve due to changing
economic conditions, the adoption of new
universal proxy rules,
climate change and sustainability, the emergence of activists
targeting special-purpose acquisition companies, the uptick
of first-time activists and the prevalence of
swarming—activist campaigns involving more than one activist with
makes us aware of activist campaigns that target large, name-brand
companies, but it’s worth noting that estimates
indicate up to 80% of activist campaigns are
focused on small-cap companies.
this backdrop, companies of every size and sector should assume a
“when” not “if” mindset and be fully prepared when an activist comes
knocking on their door.
drivers and trends change, but ultimately, regardless of what
activists are advocating for, they’re focused on unlocking value. They
have their own return targets and timeline for achieving them, and
their plans often don’t align with yours.
most things in life, it is easier, more effective and less costly to
preempt an issue than to deal with its aftermath. The same logic
applies to activist attacks. Here are some recommendations for making
sure your company is in the best possible position to avoid or
effectively manage an activist attack.
many activists are smart investors with valid ideas.
Objectively look at your company through the lens of an activist
investor and ask these hard questions:
your valuation and performance stack up to those of your peers?
have a thoughtful strategy for value creation and a track record of
have excess liquidity or assets on your balance sheet that generate
your capital allocation strategy? Is it the right one in the current
environment? Are the acquisitions you made accretive?
you have a higher valuation if you changed your outlook (i.e.,
shortening your timeline to profitability or cash needed to reach
your company be better positioned to create value as part of a
you generate higher returns if you divested a business segment?
new universal proxy rules, do you have the right board members with
relevant skills and experience, individually and collectively?
corporate governance practices in line with rapidly evolving best
have an ESG/sustainability story?
good offense is your best defense.
thoughtful investment narrative, best-in-class investor relations
program and strong investor relationships are critical.
investor narrative with an activist point of view in mind. At least
annually, and in times of changing economic or market conditions, step
back and evaluate your investment story and your investor relations
program and practices.
year-end reporting process is an ideal time to assess your company’s
performance and progress for the past year and set the stage for the
year ahead. Refresh your investment messages and make sure you have a
defensible, understandable and compelling story to tell that clearly
communicates your sustainable competitive advantages and explains how
you’re creating value.
story frequently and consistently. Be forthcoming, even if
you’re in the first year of a three-year turnaround. Make sure key
investment messages are consistently and prominently incorporated into
all investor communications: investor presentations, earnings call
scripts, shareholder letters, your investor relations website, SEC
filings and proxy statements.
maintain strong relationships with investors.
investors don’t know you, haven’t seen or heard from you lately or
don’t fully understand your strategy for value creation, it’s a lot
easier for them to side with an activist, who contacted them about
their own compelling value creation agenda.
active and passive investors participate in activist campaigns so it’s
important to communicate with both groups while recognizing that their
information needs and engagement practices are very different. If
you’re worried about an activist attack, stock surveillance can be a
work with the sell side to advocate for your company.
your analysts understand your company and your investment thesis and
can effectively market your stock. If you don’t have a champion
analyst or two in the mix, make the effort to cultivate one.
strong market intelligence to stay abreast of issues.
ongoing basis, monitor the evolving activist landscape—both in general
and as it relates to your sector.
the types of issues that activists are raising and how your company
might be impacted by them. Read sell-side research on your company and
peers with a focus on commentary related to the issues activists care
about. Watch for shifts in sell-side sentiment, ratings and price
research on your competitors to see how they are viewed, valued and
discussed relative to your company. Listen closely to the questions
investors are asking at meetings and on earnings calls and the
feedback they provide. If you don’t have a solid handle on how your
company is viewed, now might be a good time for a perception survey
conducted by a neutral and experienced third party.
The job of
an activist is far more difficult when faced with a company that is
self-aware, credible and prepared. Today, every company should have an
activist defense plan in place to avoid being caught off guard and to
ensure the best possible outcome for all stakeholders.
Forbes Finance Council is
an invitation-only organization for executives in successful
accounting, financial planning and wealth management firms. Do
Moira Conlon is the founder and
CEO of Financial
Profiles, a national strategic
communications firm that builds long-term corporate value.
© 2023 Forbes Media LLC.