The activist mindset is invading the boardroom
Activist investors boost the financial performance of the businesses they take aim at, according to a new study from S&P Global Market Intelligence, released today.
Research into US companies listed on the S&P 1500 showed that those which were part-owned by an activist investor outperformed their rivals over both the short and medium-term.
Read more: Investors win as activists invade the boardroom
After just one year, the companies that had the highest concentration of activists among their shareholders delivered an extra 3.3 per cent return to its shareholders. After five years they were delivering an extra 5.5 per cent in so-called “excess returns” – the amount by which they outperformed the wider index.
“In almost all cases, the higher the annual activist ownership rank, the higher the excess return”, S&P Global Market intelligence, a branch of the ratings agency, said.
The rise of the activist
|
|
2004 |
2015 |
|
Number of US activist funds |
170 |
280 |
|
Total activist holdings |
$58.5bn |
$133.5bn |
S&P also found that company executives are starting to think like activists in a bid to recreate this performance, even if the company is not at threat from activist investors.
“This includes today’s widespread use of stock buybacks and capital market activity such as mergers and spin-offs – all basic plays in the investor playbook – as a means of optimising corporate efficiency and delivering enhanced shareholder value,” said Michael Thompson, chairman of S&P investment advisory services.
The top 5 US targets
|
Company |
Number of activist investors |
|
Alphabet (Google) |
20 |
|
Allergan |
17 |
|
Yahoo |
14 |
|
Microsoft |
13 |
|
Time Warner Cable |
11 |
The total holdings of activist investors have more than doubled from $59bn (£40bn) to $134bn (£91bn) over the last decade. S&P also found that 40 per cent of activists hold their shares for under six months, while only 6.6 per cent held onto stock for more than three years.