Activist investors are taking advantage of favorable conditions in the 2017 market environment to further their activist agendas. Activists have an estimated $243 billion in assets under management and are eager to recoup losses from 2016, when the S&P 500 outperformed activist funds as a whole. Companies should review their overall preparedness, take a close look at their potential vulnerabilities to activist attack, and proactively shore up any weaknesses to the extent possible. Anticipating likely avenues of attack will help boards of directors to be prepared and, if necessary, to implement promptly a disciplined and focused plan of response.
Principles of Preparation
Preparation is an ongoing process. Corporate leadership can anticipate an activist approach by evaluating the business through the eyes of a short-term financial investor and understanding how that perspective may differ from that of a long-term, patient investor. Applying an activist investor’s mindset to assess and test capital allocation and other strategies for “unlocking value” can be extremely useful for the board and management team, with the caveat that understanding that mindset does not mean the company should necessarily adopt and implement it. Companies should also remain aware of the takeover landscape in their industry, with an eye to which players may be interested in acquiring them for operational or synergistic reasons, or which may enter the fray if an activist investor puts them “in play.”
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