Shareholder activism in the UK markets
The UK stock market has been the most popular location for activist campaigns for seven consecutive years, according to data from consultants at Alvarez & Marsal (A&M).
Despite concerns about the UK equity market's longstanding underperformance, activists have found success here, with UK company share prices outperforming the broader market by 9.2% two years after a targeted shareholder campaign. Campaigns in the US and Europe generated lower outperformance of 6% on average.
The UK’s appeal to activist investors can be attributed to firstly, having more listed companies than other European markets and secondly, more open share registers. The larger free floats in the UK market reduce the influence of large owners, making it more conducive to activists' demands.
Analysis by A&M indicates that activist campaigns focusing on operational transformation, rather than dealmaking, governance, or environmental and social factors, tend to prove most successful, yielding higher rewards. The research also revealed that it expects shareholder activists to carry out fewer ESG-related campaigns in 2024, favouring more lucrative agendas.
There is ongoing debate as to whether sector composition, growth outlook, income-focused investors or waning domestic pension money is the reason why the UK market trades at an approximately one-third valuation discount to global stocks. However, the consequences are clear in the rise in private equity-backed takeovers and companies moving their listing overseas.
A&M's findings support the optimistic view that UK stocks trade at lower multiples because they offer lower returns, and once adjusted for this, the discounts often disappear. Activists campaigning to improve UK operating outcomes generate better outperformance compared to other markets, with a 15% increase in the two years following, as opposed to the 9% average.
With all this in mind, Boards of any company, of any size, should be aware that activists are on the hunt for undervalued companies that are ripe for improvement, and as the saying goes, preparation is key!