Greedy corporate raiders, shareholder wrangling and bullyboy tactics – investor activism has long been seen as one of the more brutal parts of the corporate law landscape.
Broadly, investor activism refers to investors actively buying up shares in a company with the intention of gaining enough control to demand changes be made to the business. Those could involve ousting executives considered to be performing below par, or calling on companies to share their profits with investors. In some ways, they could be considered the less-than-cuddly Robin Hoods of the corporate world.
In the US, activist investors have been commonplace for decades, with big names like Carl Icahn, Daniel Loeb and Bill Ackman gaining a degree of notoriety in some corporate circles.
In the UK the phenomenon has remained fairly low key. Until recently, that is.
According to a recent investigation from FTI Consulting and Hedge Fund Research, activist hedge funds have tripled the amount of money under management over the past five years. And 40 per cent of US investors are looking to shift their focus away from North America and hone in on Europe.
One law firm that has been clambering to take advantage of this movement is the US’ Schulte Roth & Zabel, which has more than 3,000 investment funds on its books globally.
In April, Schulte Roth became one of the first US firms to formally launch its activism practice on this side of the pond. The firm is initially taking a tentative approach to growth outside of its home turf – opting to orientate the London practice around Schulte Roth’s sole M&A partner in the City, Jim McNally, rather than hiring new blood or shipping in talent.
The practice is also being cultivated by the co-heads of Schulte Roth’s global shareholder activism practice, Marc Weingarten and David Rosewater, a duo who have worked recently on various campaigns for investors including TPG-Axon Capital Management and the Clinton Group.
“We’re working with Jim to ensure that we’ve educated ourselves on the market,” says Rosewater. ”We’ve spent six months preparing for the launch, putting together materials for clients and educating each other about how to work together.”
There has also been a fair amount of research and marketing involved – scouting out potential hedge fund clients and targets in the region, and ensuring that the market knows that Schulte Roth has very much arrived.
“If it gets traction, which we think it will, there’ll be need for more resources from the UK or potentially from the US,” Rosewater adds.
Some clients, he says, are already considering making a move into European markets. But he accepts that growth of the practice is likely to be a “slow-build situation”, adding, “we’re not expecting a flood”.
The slow start is partially due to the nature of business in the UK. Rosewater notes that it’s a more tight-knit community than North America’s vast corporate landscape. And, to an extent, old-fashioned British reticence means that parties are more reluctant to do their business in the public eye. According to a recent report by banking group Citi, in Europe nearly 45 per cent of all activist campaign activity is private.
Quite the opposite has often been the case in the US, where activist Icahn last year made Twitter his vehicle of choice to announce his large position in Apple. Litigation has also become a regular occurrence on the activist scene – for example, David Einhorn’s lawsuit against the same company to release £91bn cash in 2013.
“It’s not always pure, constant aggression,” stresses Rosewater. Rather, he adds, there are different flavours of activists in the US – and they’re not all in the “shoot, ready, aim crowd”.
A number of funds consider themselves to be ‘constructivists’ – taking a more co-operative approach to activism than some other big names on the activist scene. This set tends to include investors Blue Harbour, Relational Investors and Knight Vinke.
These are “greeted more warmly than some others,” says Rosewater. And they’re one breed of investment fund that he expects to see making in-roads into the European market.
For instance, Spring Owl recently gained a 5.2 per cent stake in FTSE-250 listed online gaming company Bwin.Party and has proposed four representatives onto the board – its first investment in the UK.
Spring Owl will sit aside a number of the more ruthless funds which already have a hand in the UK market. These include Elliott Investments which has been involved with National Express, and earlier this year picked up a stake in supermarket WmMorrison pushing for a radical shake-up of its property portfolio.
Either way, Schulte Roth’s establishment of a shareholder activism base in Europe suggests that this phenomenon is no passing fad. A lucrative area rich for the pickings – no doubt there will be an array of both UK and US-based firms looking to get in on the activist action.