Experts are warning that investor activism is on the rise across Europe. Swiss companies are also being targeted by shareholder activists.
The group of investors around Newgame and Bruellan has been making headlines for weeks. In the bidding war for Swiss investment company GAM, they are keeping up the pressure on British asset manager Liontrust and the GAM board of directors. The GAM rebels are only representative of a trend that is beginning to spread across Europe.
Activist investors are increasingly vocal across Europe. Since the beginning of the year, the number of activist campaigns has increased from month to month, according to auditing and consulting firm Alvarez & Marsal (A&M). Companies from Switzerland are a particular target of activists.
Rising Cost of Capital
A&M's specialists are currently monitoring 102 funds using activist tactics in Europe. They have also identified 143 companies at increased risk of falling victim to shareholder activism if no countermeasures are taken and better results are not achieved.
Activist shareholders seek to actively influence management and corporate strategy by investing in listed companies, and often hedge funds or wealthy individuals whose aim is to drive up the company's share price.
Rising capital costs will be a major driver of shareholder activism in Europe for the rest of this year and next, the study found. To prevent companies from becoming the next target of activists, experts say they need to increase their capital, structural and operational efficiency, and create appropriate incentive structures.
Opportunities for Attack
With activism in the US set to reach record levels next year, boards of directors in Europe should brace themselves for a wave of activism over the next 12 months, the study authors warn. The weak operational and financial performance of many Western European companies offers numerous opportunities for activist intervention, they say.
In particular, the «Big 5» markets of the UK, Germany, France, Switzerland, and Scandinavia are the focus of activists. Among sectors consumer goods, industry, and technology receive the most attention. More than ever, activist campaigns are also environmentally motivated.
Reform Aiding and Abetting
British and German companies are most targeted by activists, particularly as they're underperforming their global peers on average in terms of gross margin growth, return on capital employed, and revenue per employee.
French and Swiss companies continue to provide targets for activists, with relative underperformance versus global peers in EBIT, cash margins, and returns on equity. In Switzerland, moreover, the reform of stock corporation law, which came into force in January 2023 and brings more flexible formation and capital rules for public companies, could further encourage activism.
No Easy Game
The investment returns of activists are not easy to judge. Skeptics consistently point out that activist investments can't beat the market, but that the stock prices of target companies underperform broad stock indexes.
Forced changes in corporate governance are particularly difficult, while corporate transformation provides the best returns to target company shareholders.
