- More and more funds are pursuing activist strategies when making investments
- Low valuations provide opportunities for M&A and activist activity
Munich, December 08, 2022 – Alvarez & Marsal (A&M) , a leading global advisory firm, has presented the latest edition of the A&M Activist Alert (AAA), providing up-to-date analysis and forecasts on the activities of activist investors in Europe. A&M evaluated 1,611 European companies with a market capitalization of USD 200 million or more as of November 1, 2022. The AAA has been published twice a year since 2015.
- 0.1 The proportion of activist campaigns driven by ecological or social factors continues to grow in this wave. However, A&M also believes that given the complex political and economic environment, more and more investors will focus on short-term financial performance.
- 1 Rising M&A activity creates opportunities for activists
- 2 29 German companies currently targeted by activist investors
- 3 About the A&M Activist Alert (AAA)
- 4 About the Red and Yellow List
- 5 Other Reading
In the current outlook, A&M expects a wave of activist investments in Europe in the course of 2023, which will continue in 2024. This is a resurgence after investor caution and wait-and-see behavior since early 2022. The aftermath of the Russian invasion of Ukraine had made the analysis of companies’ immediate futures unusually complex. This uncertainty will be reduced in favor of greater transparency again. Europe is currently in a trough between two activist peaks.
“The financial performance of individual business areas varies greatly in many companies. Increased capital costs will make responsible capital allocation a key issue for board members in 2023,” said Patrick Siebert , Managing Director and Co- Head A&M Germany . “Valuations of business models whose profits lie in the future are currently under pressure, while asset-light business models are all the rage. Portfolio adjustments will become essential for many companies in 2023.”
The proportion of activist campaigns driven by ecological or social factors continues to grow in this wave. However, A&M also believes that given the complex political and economic environment, more and more investors will focus on short-term financial performance. This makes it more difficult for activists to garner broader shareholder support for long-term environmental and social investment theses.
Rising M&A activity creates opportunities for activists
Another factor that offers activist investors additional incentives are the low valuations and falling price-to-earnings ratios across Europe. These will entail further M&A activities in 2023. In takeover and spin-off processes in particular, activists will get involved and put pressure on the actors involved.
29 German companies currently targeted by activist investors
In total, A&M has identified 144 companies at risk of activist attacks within the next 18 months. Alongside Switzerland, Germany is the only country analyzed in which the number of companies at risk is growing: 29 German companies are on A&M’s red (12) or yellow list (17).
“Activists’ interest in German companies is suffering less from the uncertainty of the markets than in the general trend,” explains Patrick Siebert . “Valuations of German companies, especially in the industrial and consumer sectors, have fallen. Although German companies have often been able to successfully develop their sales, cash flows, profitability and returns on capital employed are under pressure.”
About the A&M Activist Alert (AAA)
A&M’s Activist Alert model is the most comprehensive statistical analysis of its kind. Since 2015, the AAA model has analyzed a set of qualitative and quantitative factors for 1,611 publicly traded companies with a market capitalization of US$200 million or greater. The analysis includes companies headquartered in the UK, Germany, France, Scandinavia, Switzerland, Benelux, Italy and Spain.
The AAA ranks these companies’ performance against 5,344 of their global peers. The resulting prediction model has successfully predicted the majority of companies that have been publicly targeted by activists since January 2015. The report is usually updated and published twice a year. Individual companies can verify their position on the alert list by contacting A&M.
For more information, as well as previous reports and analysis , follow this link .
About the Red and Yellow List
The AAA model calculates a score for all analyzed companies that predicts the likelihood of public activism. Companies with high AAA scores, and therefore with a higher predicted probability of becoming a public target, are assigned to the red or yellow alert level. These ratings are based on the AAA score, which is calculated on two bases: an analysis of past two years’ performance and a “leading indicator” analysis that focuses on past year’s performance.
The red list includes companies that have a high AAA score on both a two-year and one-year basis. They are considered at high short-term risk (over the next 6 to 12 months) of public activist action or may already be the subject of non-public initiatives.
The yellow list includes companies with a high AAA score on either a biennial or an annual basis. There is a high probability that these will be observed by activists. Such companies are considered to be medium-risk companies, which will only increase if no remedial action is taken within 12 to 18 months.