Over the next 12 to 18 months, the activist funds will target 156 European companies, including 12 from Italy, one more than in 2017, according to the latest observatory by the consultancy Alvarez & Marsal, based on public information from the companies listed in 13 European countries with a market capitalization of more than $200 million. Looking at 42 indicators, analysts have predicted which companies and which markets are most likely to be attacked by activist funds.
“Italy's attractiveness increases together with that of France, Germany and the United Kingdom. As the appeal of Swiss and Scandinavian companies diminishes, activists are becoming increasingly impatient, giving boards less time to deal with poor performance, the report reads. The average time between the first sign of underperformance and action has shortened from just over 2 years in 2016 to 1 year and 8 months nowi ".
According to Alberto Franzone, managing director of Alvarez & Marsal in Italy, “the activism of some investors represents a strong drive towards corporate transformation, but could in some cases lead to a destruction of value if it were solely aimed at long-term speculative trading. Preventing any attacks would be beneficial for everyone, shareholders, workers, suppliers and stakeholders".
The observatory then cites a series of indicators that more than others influence the aggressiveness of activist funds:
- The variability of the performance of the various business areas of a company increases the activist risk, by those investors who see opportunities for improvement or valorisation through sale in the weaker businesses.
- The correlation with macro-trends: in the near future, the sector most exposed to activist risk will be that of Consumer Goods as it grapples with the change of pace generated by alternative retail channels, the contraction in consumer spending and the increase in costs. Followed by industrialists, healthcare and IT. Energy and commodities, on the other hand, are not on activists' radars, as a recovery in commodity prices has boosted profits.
- The largest capitalization: on average, according to the study, the average market capitalization of companies at risk is 17,58 million dollars, higher than in the last survey of September 2017 (6,7% higher).
- A wide range of profitability across divisions captures the attention of activist investors.
- Company Assets: Activist funds favor companies whose assets are above the industry average.
- The composition of the board: the greater presence of women on boards of directors reduces the likelihood of being targeted by activist investors.
