Jeffrey Smith, chief government officer and chief funding officer at Starboard Value LP.
David Paul Morris | Bloomberg | Getty Images
2021 was a busy yr for activist funds, with notable buyers together with Starboard Value, JANA Partners and Carl Icahn pushing for significant change at an array of firms.
In all, activist shareholders launched into 89 campaigns final yr in a spread of sectors, together with data expertise and client discretionary. These buyers additionally used totally different strategies to enhance outcomes for shareholders, together with waging campaigns regardless of proudly owning lower than 5% of an organization’s frequent inventory. This is named “underneath the brink” activism.
Here’s a look at how 2021 formed up for activist funds.
Annual Shareholder Activism
| Total Activism | 2021 | 2020 |
|---|---|---|
| Number of Campaigns | 89 | 89 |
| Average Market Cap | $12.3 billion | $21.0 billion |
| $ invested in New Filings | $20.9 billion | $18.7 billion |
13D Activism in 2021 and 2020
| Year | 2021 | 2020 |
|---|---|---|
| Number of Campaigns | 41 | 48 |
| Average Market Cap | $4.8 billion | $2.9 billion |
| $ invested in New Filings | $10.5 billion | $10.5 billion |
| Average % Ownership | 7.87% | 9.02% |
Non 13-D Activism (or Under the Threshold Activism)
| Year | 2021 | 2020 |
|---|---|---|
| Number of Campaigns | 48 | 41 |
| Average Market Cap | $18.9 billion | $42.2 billion |
| $ invested in New Filings | $10.4 billion | $8.2 billion |
| Average % Ownership | 2.23% | 0.47% |
Behind the numbers
Total activism: Total activism remained remarkably constant from 2020 to 2021. In each years there have been a complete of 89 new campaigns. This continues to be properly beneath the pre-Covid years (102 in 2019 and 113 in 2018). We anticipate that as Covid subsides, individuals will return to work in-person and issues start to return to regular, activism can even return to its previous ranges.
What was distinctive about 2021, nevertheless, is that it was the primary yr since we started protecting “underneath the brink” (or UTT) activism in 2014 that the variety of UTT conditions exceeded the variety of 13D conditions. (*89*) had been 41 materials 13D campaigns and 48 UTT campaigns versus 48 materials 13D campaigns and 41 UTT campaigns in 2020. We consider this displays two fundamental issues: (i) activists more and more with the ability to be more practical with decrease share holdings and (ii) activists utilizing swaps and derivatives to avoid 13D necessities whereas exceeding 5% financial publicity.
Since 2017, the variety of 13D filings has decreased every year with solely 41 new activist 13D filings in 2021, in comparison with 48 in 2020, 61 in 2019, 65 in 2018 and 71 in 2017. While there continues to be a drop off in the variety of 13D campaigns, the typical market capitalization for focused firms is the very best it has been since 2015. Moreover, regardless of fewer 13D filings, the quantity of whole {dollars} invested in new 13D campaigns ($10.5 billion) is roughly the identical for the 41 such filings from final yr as it’s for the 48 13D filings in 2020. Both years considerably exceed the $8.8 billion invested in the 61 13D filings in 2019.
The variety of UTT campaigns in 2021 returned to its 2018 degree of 48 engagements after being stagnant with 41 engagements in 2020 and 2019. While the entire {dollars} invested in new UTT filings in 2021 elevated by 27% from $8.2 billion in 2020 to $10.4 billion in 2021, that is nonetheless far beneath the $17.7 billion of 2018.
Activist buyers: While we’re nonetheless residing in a world pandemic, the activist investor base is wanting like 2020 with the reemergence of some main buyers. For starters, Elliott Management and Starboard had been each among the many most lively in 2021, though barely much less so in comparison with the prior yr. Elliott had seven campaigns in 2021 versus 9 in 2020, and Starboard had seven campaigns in 2021 versus eight in 2020. Also, among the many most lively was JANA Partners with seven campaigns in 2021, versus just one for 2020. Carl Icahn additionally picked up with 4 campaigns for 2021 versus two in 2020. We are additionally seeing consistency with 2020 as regards to the range in the 13D filer base, with 34 distinctive filers in 2021 and 33 distinctive filers in 2020, versus 49 distinctive filers in 2019. This continues to make sense as a result of when a technique turns into more and more more difficult, as activism has on account of Covid, typically buyers who’re using activism as a core technique will proceed utilizing it.
Industries: The prime 4 industries focused in 2021 had been: (1) Information Technology, (2) Consumer Discretionary, (3) Financials and (4) Health Care, and these industries made up 68.54% of all activism in 2021. In 2020, the highest 4 industries focused had been (i) Consumer Discretionary, (ii) Information Technology, (iii) Health Care and (iv) Industrials, the 4 of which comprised 56.18% of all 2020 activism. Industrials left the highest 4 by going from 10 engagements (11%) to 5 engagements (6%) and was re-placed by Financials, which went from six engagements (7%) in 2020 to 13 engagements (15%) in 2021. Moreover, that is the primary time since 2016 that Information Technology surpassed Consumer Discretionary as probably the most focused business. One different notable change was Energy reducing from eight campaigns in 2020 to solely two in 2021.
Outcomes: Activists have been comparatively on par with the outcomes of their campaigns in 2021 versus 2020 based mostly on the 40 13D and UTT campaigns in 2021 which were determined (excluding the 38 pending, 9 withdrawals and the 2 campaigns the place the activist didn’t take any particular activist measure). The share of settlements (68% in 2021 versus 62% this time final yr), full wins (3% in 2021 versus 4% this time final yr) and losses (30% in 2021 versus 22% this time final yr) remained pretty constant.
A take a look at the up to date 2020 knowledge (which is extra full than 2021 knowledge on account of many pending 2021 engagements), exhibits a placing revelation. In 2020, 68% of 13D engagements settled versus 38% of UTT conditions. Moreover, solely 18% of 2020 determined 13D conditions have resulted in a loss versus 34% of determined 2020 UTT campaigns whereas 15% of 13D engagements have resulted in a full or partial win versus 28% of UTT conditions. Moreover, that is per the mixture variety of 13D and UTT campaigns between 2014 and 2020.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.