Shareholder activists often boost a company’s valuation during their campaigns, and the gains last for the first three years. However, the situation is less clear after the activist exits, note partner Joseph Cyriac and colleagues. About 40 percent of companies that benefited while under activist influence saw negative three-year excess total shareholder returns after the activist departed, based on an analysis of nearly 170 global shareholder activist campaigns over the past decade. That’s nearly double the number of companies that experienced positive returns during the same postexit period.
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A scatterplot shows the relationship between a company’s TSR during an activist investor’s holding period and the company’s excess TSR 3 years after the activist exits its position. The horizontal axis shows the TSR during the holding period, while the vertical axis shows the excess TSR 3 years after the activist has exited its position. Both axes are measured as a percentage (CAGR). The sample includes 166 activist campaigns between 2010 and 2020 and is broken down into separate charts by geographic region: Asia (n = 18), Europe (n = 35), North America (n = 111), and the rest of the world (n + 2). A final chart shows all the regions together.
In the final chart, the data points are clustered in the bottom right quadrant of the scatter plot . This suggests that many activist campaigns (39%) result in a positive TSR while the activist holds the company’s shares, followed by a negative return in the 3 years after the activist has exited its position. However, some companies (23%) have a positive TSR while the activist holds their shares and continue to generate a positive TSR for 3 years after the activist exits. In addition, a smaller share of companies (19%) have a negative TSR while the activist holds their shares and continue to generate a negative TSR for 3 years after the activist exits. Similarly, a small share (also 19%) have a negative TSR during the holding period but a positive TSR after the activist exits.
Source: Insightia (Diligent Market Intelligence); S&P Capital IQ.
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To read the article, see “Do shareholder activists create lasting value?,” July 5, 2024.