SINGAPORE (Jan 17): With potentially volatile stock prices on the horizon, the impact of activists and shareholder activism – now permanent features of global capital markets – will be felt more than ever in 2019, says JP Morgan.
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According to the financial services firm’s Global M&A Outlook report for 2019, direct activist assets under management (AUM) stood at US$126.9 billion as at 3Q18.
Out of 234 non-US activism campaigns initiated in 9M18, an estimated 46% targeted European companies, with 32% of European campaigns having at least one M&A-related demand. A significant 29% of activists sought to catalyse a deal by calling for a strategic review of alternatives, a spin-off, split or full sale.
Nonetheless, the firm expects merger and acquisition (M&A) activity to remain strong amid regulatory and geopolitical headwinds this year, with robust activity in the US$1 billion and US$10 billion deals continuing to drive the M&A market.
It also notes that institutional investors have demonstrated an increasing acceptance of activism, with some at least partially adopting a shareholder activism strategy themselves.
Looking into 2019, JP Morgan foresees US campaign activity to remain at levels similar to those in 2018 – while activism outside of the US grows rapidly as activists seek out attractive risk-reward opportunities in Europe and Asia.
The firm also anticipates an emerging trend towards more complex campaigns as activists focus on catalysing strategic and operational change at companies – and embrace the growing importance of environmental, social and governance issues to both active and passive institutional investors.
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“As companies have invested more energy in preparing for the prospect of shareholder activism, 2018 saw a heightened willingness to push back against an activist approach; companies are increasingly skeptical of settlement and are becoming more comfortable allowing campaigns to go to a shareholder vote if a reasonable settlement cannot be reached,” notes JP Morgan.
The firm also highlights corporate clarity as one of the key themes driving M&A activity in 2019, as pressure remains on companies to review their business structures and unlock value.
