Jeffrey Smith, managing director and chief investment officer at Starboard Value LP.
David Paul Morris | Bloomberg | beautiful pictures
2021 is a busy year for active funds, with notable investors including Starboard Value, JANA Partners and Carl Icahn driving meaningful change at a range of companies.
In total, activist shareholders embarked on 89 campaigns last year in a variety of areas, including information technology and consumer discretion. These investors also use various methods to improve shareholder outcomes, including running campaigns despite owning less than 5% of a company’s common stock. This is called “below threshold” operation.
Here’s a rundown of how 2021 will shape funds.
Annual activities of shareholders
| Holistic activism | Year 2021 | Year 2020 |
|---|---|---|
| Number of campaigns | 89 | 89 |
| Average market cap | 12.3 billion dollars | 21.0 billion dollars |
| $ invest in New Movies | 20.9 billion dollars | 18.7 billion dollars |
13D Activism in 2021 and 2020
| Five | Year 2021 | Year 2020 |
|---|---|---|
| Number of campaigns | 41 | 48 |
| Average market cap | 4.8 billion dollars | 2.9 billion dollars |
| $ invest in New Movies | 10.5 billion dollars | 10.5 billion dollars |
| % Average ownership | 7.87% | 9.02% |
Non-13-D Activationism (or Subthreshold Activationism)
| Five | Year 2021 | Year 2020 |
|---|---|---|
| Number of campaigns | 48 | 41 |
| Average market cap | 18.9 billion dollars | 42.2 billion dollars |
| $ invest in New Movies | 10.4 billion dollars | 8.2 billion dollars |
| % Average ownership | 2.23% | 0.47% |
Behind the numbers
Total activities: Total activity remained remarkably consistent from 2020 to 2021. In both years, there were a total of 89 new campaigns. This number continues to be much lower than in pre-Covid years (102 in 2019 and 113 in 2018). We expect that when Covid subsides, people will return to face-to-face work and things start to return to normal, and positivity will also return to the old level.
What’s unique about 2021, however, is that it’s the first year since we started talking about “under-threshold” (or UTT) activism in 2014 that the number of UTT situations exceeds the number of UTT situations. 13D situation. There are 41 documentary 13D campaigns and 48 UTT campaigns compared to 48 documentary 13D campaigns and 41 UTT campaigns in 2020. We believe this reflects two main things: (i) increasing activists are more effective with lower holdings and (ii) activists use swaps and derivatives to overcome 13D claims while exceeding 5% economic risk.
Since 2017, the number of 13D filings has decreased each year with just 41 new 13D activist filings in 2021, compared with 48 in 2020, 61 in 2019, 65 in 2018 and 71 in 2017. While there continues to be a decline in the number of 13D campaigns, the average market capitalization for the companies targeted is the highest since 2015. Furthermore, despite fewer 13D filings , but the total dollars invested in new 13D campaigns ($10.5 billion) is roughly the same as 41 such profiles last year as it is for 48 13D profiles in 2020. Both all significantly exceeded the $8.8 billion investment in 61 13D profiles in 2019.
The number of UTT campaigns in 2021 has returned to 2018 levels of 48 interactions after stagnation with 41 interactions in 2020 and 2019. While total dollars invested in new UTT profiles came in. 2021 is up 27% from $8.2 billion in 2020 to $10.4 billion in 2021, which is still much lower than the $17.7 billion in 2018.
Active investors: While we are still living in a global pandemic, the investor base acts like 2020 with the reunion of some major investors. For starters, Elliott Management and Starboard are both the most active companies in 2021, albeit slightly worse than the previous year. Elliott has seven campaigns in 2021 compared to nine in 2020, and Starboard has seven in 2021 versus eight in 2020. Also among the most active are JANA Partners with seven campaign in 2021, compared with just one in 2020. Carl Icahn also chose with four campaigns for 2021 versus two in 2020. We are also seeing consistency with the relevant 2020 to diversity in the 13D filter base, with 34 unique filers in 2021 and 33 unique filers in 2020, compared with 49 unique filers in 2019. This continues to make sense because As a strategy becomes more and more challenging, like Covid activism, generally investors who are using activism as a core strategy will continue to use it.
Career: The top four industries targeted for 2021 are: (1) Information technology, (2) Consumer discretionary, (3) Finance and (4) Healthcare and these make up 68, 54% of total activity in 2021. In 2020, the top four sectors targeted are (i) Consumer discretion, (ii) Information technology, (iii) Healthcare and (iv) Industries, four of which accounted for 56.18% of all activities in 2020. Sectors fell out of the top 4 as they increased from 10 commitments (11%) to 5 commitments (6%). ) and folded by Financials, from six commitments (7%) in 2020 to 13 commitments (15%) in 2021. Moreover, this is the first time since 2016 that Information Technology has surpassed Consumer Discretionary became the most targeted industry. Another notable change is that Energy drops from eight campaigns in 2020 to just two in 2021.
Result: Activists have been relatively on par with the outcome of their campaigns in 2021 compared to 2020 based on the 40 decided 13D and UTT campaigns in 2021 (excluding the 38 pending campaigns) management, nine withdrawals, and two campaigns where the activist did not take any particular action. Flat rate (68% in 2021 vs 62% this time last year), full win (3% in 2021 vs 4% this time last year) and loss (30% in 2021) compared to 22% at this time last year) is still pretty solid.
A look at the updated 2020 data (more complete than the 2021 data due to the many pending 2021 commits), reveals a remarkable revelation. In 2020, 68% of 13D interactions have resolved compared to 38% of UTT situations. Furthermore, only 18% of the 2020 decisive 13D scenarios resulted in a loss compared to 34% of the decisive 2020 UTT campaigns while 15% of the 13D scenarios resulted in a full or partial win. compared with 28% of UTT situations. Furthermore, this matches the total number of 13D and UTT campaigns from 2014 to 2020.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder performance, and the founder and portfolio manager of 13D Activity Fund, a mutual fund. invest in a portfolio of 13D activists.
