Investor activism was down overall in 2020, but big companies faced scrutiny
Daniel Loeb, chief executive officer of Third Point LLC, speaks at the Skybridge Alternatives conference in Las Vegas, May 18, 2017.
David Paul Morris | Bloomberg | Getty Images
In light of the global pandemic, it comes as no surprise that activism in 2020 was down.
There was less 13D activism, less UTT-activism and less capital invested in new campaigns. (“UTT” activism, or under-the-threshold activism, are activist campaigns by shareholders owning less than 5% of the common stock and not required to make a 13D filing.)
However, it is remarkable that the average market capitalization for total activism was at its highest in the past four years at $21.04 billion (compared to $9.87 billion in 2019, $20.47 billion in 2018 and $13.05 billion in 2017).
Since 2017, the number of 13D filings has decreased each year with only 48 new activist 13D filings in 2020, compared to 61 in 2019, 65 in 2018 and 71 in 2017. While there was a drop off in the number of 13D campaigns, the average market capitalization increased and the dollars invested in new 13D campaigns increased. However, 2020 is still far behind the $4.1 billion average market cap and $19 billion total invested in 2017.
The number of UTT campaigns in 2020 was fairly consistent with 2019, but the big story of 2020 UTT activism, is the surge in megacap activism, with the market capitalization of targeted companies nearly doubling in 2020. This is because there were six campaigns in 2020 at companies with market capitalizations in excess of $150 billion (Comcast/Trian, Exxon Mobil/Engine No.1 and DE Shaw, Johnson & Johnson/Trillium, Walt Disney/Third Point and Intel/Third Point). This is more than the total megacap activism over the past three years combined – 2019 had one situation and 2018 and 2017 each had two situations. Despite this, the dollars invested in new campaigns declined indicating that activists are comfortable taking much smaller positions in their activist campaigns.
The days of needing 5% to accomplish activist goals are gone.
With the exception of Elliott Management, every major activist investor launched fewer campaigns in 2020 than 2019. Moreover, there was a much less diverse 13D filer base in 2020 with 33 different filers versus 49 in 2019. This makes sense because when a strategy temporarily falls out of favor, generally only the investors who employ it as a core strategy will continue using it.
The industries engaged by activists were remarkably consistent between 2019 and 2020. The top four industries made up 63% of all activism in 2019 and 56% in 2020. Those industries did not change from 2019 to 2020 and remained in the following order: (1) Consumer Discretionary, (2) Health Care, (3) Information Technology and (4) Industrials (tied with Financials in 2019). The remaining industries had no real material change between years.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC.