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Welcome to another edition of M&A Corner.
00:00:09:16 - 00:00:12:08
I'm joined today by Peter da Silva Vint,
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a Managing Director at
Jasper Street Partners.
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Which is a specialized advisory firm
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focusing on high-priority
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matters that impact long-term value creation.
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Shareholder engagement, proxy voting, activism
00:00:25:18 - 00:00:27:23
advisory, and corporate governance.
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Peter, thanks for joining me today.
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Thanks, Doug. Happy to be here.
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Let's set the table a bit. We've seen a
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Let's set the table a bit. We've seen a
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continued rise in activism over the last several
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years, really peaking last year with approximately
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875 campaigns, both long and short campaigns.
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That's continued into this year with a particular rise in
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short campaigns in the early part of this year.
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The campaigns have been targeting reasonably familiar themes.
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Financial performance or the lack thereof,
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board composition, and most recently ESG themes,
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originally pro-ESG and now anti-ESG.
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Let me start by asking you, what trends are you seeing?
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That's a great question. I think leading into Q1 of this year,
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some of the trends that we saw emerge last year,
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one was proliferation of smaller activists.
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Many of them had cut their teeth at the more brand name,
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larger ones such as Elliott or Trian.
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They've kind of come out with a bang. They've targeted
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companies of all market caps. They've been super aggressive.
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They've been super successful.
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Another trend we saw was a record number of CEO departures.
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Traditionally, activists didn't really focus on CEOs.
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Shareholders seem to be less willing to
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support an activist targeting a CEO, but that trend
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seems to have shifted in the opposite direction.
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I think the other thing we've seen is activists have
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become more emboldened. They're going after larger targets,
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and their asks have also become more aggressive.
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So, instead of asking for a handful of
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seats, they're asking for all of the seats.
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That's pretty atypical, isn't it?
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Yes, I think traditionally shareholders weren't comfortable with
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ceding control to what people thought were short-term
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minded investors. Over time, they've proven
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themselves to be more credible to the BlackRocks,
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the Vanguards, the State Streets, as drivers of
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change, as catalysts to drive change where these
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large shareholders have to— they can only vote.
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They can't vote with their feet, and this is a way of
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exacting that type of change.
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So that reminds me of the expression constructivist
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versus activist, and we didn't really touch on this yet,
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but is that really just the same thing with a
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different name? Is it still a wolf in sheep's
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clothing, or do you feel like there really is a
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change with a constructivist mindset?
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I think there's a change. I think there's been feedback from
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large shareholders that proxy fights are
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distracting, they're a waste of money, and they're—
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Super expensive.
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Super expensive. They've gotten
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more expensive over time. I think there is a class
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of activists, or constructivists, that they actually
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do come in, and they do request a meeting, and they
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do say, this is our thesis. This is where we see
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holes in your performance. Prove to us why we're wrong.
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And if we’re wrong, we’re happy to kind of walk away.
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And so you're seeing more of that,
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but you still have sometimes the only way to get change
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is to kind of go back to those old school roots.
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Pivoting now to focus on the current environment.
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As we entered 2025, I think everybody anticipated
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As we entered 2025, I think everybody anticipated
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a wave of traditional M&A stepping in, and while that
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has yet to materialize as we're all waiting for a
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little bit greater stability and clarity in the
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administration, what it has caused is a tremendous
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amount of economic uncertainty in the current environment.
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A lot of market volatility.
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Does that empower activists to be more aggressive, or are they
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taking a back seat like the strategic acquirers?
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I think it's the latter. I think activists,
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fundamentally, they are value investors, and they
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think about things like other investors do.
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What we found is that they are on the sidelines.
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Year-to-date, live campaigns launched, they're down about 30%
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to 40% compared to last year. So what you're seeing
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to 40% compared to last year. So what you're seeing
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is they're kind of waiting for this noise to die
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down and there to be a little bit more certainty.
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There is a view, though, that post-April 2nd, when
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we get more certainty on things such as tariffs,
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that the activists will come back out. Another one
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of these trends that we've seen that I didn't
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mention before is that activists have made this a
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year-round sport, so they're no longer beholden to
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annual meeting cycles, and so they can kind of
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announce themselves any time of the year.
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So would you say that the activists are adopting new
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strategies to address the current environment?
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So have the strategies changed? Have the themes changed?
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Or is it more continuation of the same, but
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with the current market backdrop? So what we've seen
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so far this year, last year you saw Elliott take
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multiple, multi-billion dollar positions in
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companies and ask for change. We haven't seen that
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so much this year. Today you saw Starboard announce
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that they were running a proxy fight at Autodesk,
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their $500 million stake in a $56 billion company.
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Earlier this week, Engine Capital announced a
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settlement with National Vision. The window had
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closed a few weeks ago. There was no mention of an
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activist in the stock, but they were able to hash
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out a settlement behind the scenes quietly.
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So things have changed a little bit.
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What would you say are the key elements of
an effective defense strategy?
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I think being prepared is the most
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effective defense strategy.
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What does that mean?
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So, I mean, outside of having a well-performing stock
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price, I think it's organizing a team of advisors,
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looking inwards, you know, where are potential gaps
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in your governance profile, looking outwards.
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How are you trading relative to your peers?
And then how
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do you think about any sort of shortcomings?
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And then I think finally, too, just knowing your
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shareholder base, engaging with them consistently in
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what we call the off-season, finding out what their
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pressure points are and where they
may have issues
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with you should somebody else
come unannounced.
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I use the expression bringing activism in-house.
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And I think that's really critical advice, is having an
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objective lens for a management
team to spend time
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looking at the company unemotionally, how an
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objective outsider might look at the company,
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and being comfortable enough to look at where those
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shortcomings are and proactively work
to address those.
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I was also struck by something else you said,
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which is maintaining an active dialogue with your
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which is maintaining an active dialogue with your
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most important shareholders, but
making that more of
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a continuous process versus episodic.
So making it a
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regular part of your conversation with your
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institutional shareholders, making sure they
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understand management strategy. I
don't mean to be
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putting words in your mouth, but is that the kind of
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thing you're talking about?
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Yeah, and you know, this engagement paradigm has shifted a little bit in the
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last month because the SEC has given
new guidance on
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how these large shareholders can interact with the
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companies that they own. But traditionally, that's
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been the case, is that you are in front of them,
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you're offering up conversations, you are sharing
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your views on strategy and driving long-term
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shareholder value, because that's how they kind of
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see it, is that they're long-term
holders of the company.
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They'll be there after you leave. They were
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there before you were there. So they want to see
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that you're a good steward of shareholder value.
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Peter, you mentioned the recent SEC rule change
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regarding filing obligations.
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Can you expand upon that a little bit?
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Yes, so last month, the SEC
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issued guidance on 13G and 13D filers.
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So 13G filers are passive holders.
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So you think of the large
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institutional investors, BlackRock, Vanguard, State Street.
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What they do is they have large percentages
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of ownership, but they have no plans on exerting
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control or influence over a company.
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So they’re engaging, they’re talking about strategy,
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they’re talking about governance,
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they’re talking about environmental
and social issues.
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And that’s been the case for many years.
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So now, recently, the SEC is saying that
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engaging in those topics may be viewed
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as trying to exert control and influence
on these companies.
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And so these large institutional
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shareholders may have to file 13Ds, which is what
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activists do. And what it’s done is there’s been a
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chilling effect on engagements. BlackRock and
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Vanguard paused engagements while they tried to
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digest what this meant for them.
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There actually was a large proxy fight
last month where this happened
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in the middle of the fight just before the vote.
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And I think what they’ve come to the
conclusion is they
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will engage, they will give a disclaimer that
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they're not attempting to influence or
exert control over a company.
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So we've talked about what
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makes for good defense
preparedness. Let's look at
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makes for good defense
preparedness. Let's look at
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it from the other side. When you're seeing that
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companies are making mistakes, what are the most
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common mistakes you see? And I think that's helpful
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because if people understand what the most common
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pitfalls are, we can work proactively with clients
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to try and address those up front.
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Yes, I think the most common mistake, I guess the two most common
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mistakes are, one, taking it very personal.
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A lot of times you see a CEO where either he's the founder,
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he's been there for a long time, and he feels like
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these activists are trying to take the company away
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from him, whereas if you think about the fact pattern,
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it's not that different from any of their other campaigns.
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This is not a specialized, targeted campaign going after this particular CEO.
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I think that that's one issue. And then
I think the other one is,
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like you mentioned before, ignoring the
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large shareholders, putting a lot of emphasis on
00:10:06:01 - 00:10:09:06
maybe ISS and the proxy advisors and believing that
00:10:09:06 - 00:10:11:19
a positive recommendation there is going to bail you out,
00:10:11:19 - 00:10:13:20
because that's not the case. I think over time
00:10:13:20 - 00:10:16:01
these large shareholders have shown that they do
00:10:16:01 - 00:10:18:20
their own research and they make their own decisions.
00:10:18:20 - 00:10:22:08
You mentioned in the defense preparedness
00:10:22:08 - 00:10:29:05
phase what companies should be focused on to avoid
00:10:29:05 - 00:10:32:13
or prepare for an activist.
00:10:32:13 - 00:10:35:22
In the unfortunate event, though, that somebody does receive a call,
00:10:36:23 - 00:10:40:14
what would you say are the first course of action
00:10:40:14 - 00:10:44:18
that a CEO or a board chair should take?
00:10:44:18 - 00:10:47:15
That's a great question. I think the first step they should
00:10:47:15 - 00:10:51:12
take is calling their friendly bankers at Mizuho | Greenhill.
00:10:51:23 - 00:10:56:00
I do think that every company has a bank,
00:10:56:02 - 00:10:58:16
they've got a lawyer, but not necessarily a
00:10:58:16 - 00:11:00:21
specialized bank or specialized lawyer.
00:11:00:21 - 00:11:04:10
And so I think what they need to do is look long and hard at
00:11:04:10 - 00:11:07:17
their advisor deck and see whether or not they need
00:11:07:17 - 00:11:10:18
to supplement that.
So calling a Jasper Street where
00:11:10:18 - 00:11:13:02
we specialize, where we're tactically targeting your
00:11:13:02 - 00:11:16:01
shareholder base, looking at some of these law firms
00:11:16:01 - 00:11:19:12
where this is their bread and butter, making sure
00:11:19:12 - 00:11:22:13
that those people on board will optimize outcomes.
00:11:22:13 - 00:11:28:02
I happen to agree with you that the best response is a
00:11:28:02 - 00:11:31:20
proactive approach where the board has a
00:11:31:20 - 00:11:35:05
well-defined sense of the company's standalone intrinsic value.
00:11:35:05 - 00:11:38:00
You've done the analysis on if it's a
00:11:38:00 - 00:11:40:09
situation where somebody's advocating for a breakup,
00:11:40:18 - 00:11:44:09
the sum of the parts valuation. And the worst time
00:11:44:09 - 00:11:47:13
to have your back against the wall is to be facing
00:11:47:13 - 00:11:52:11
those issues upon receipt of an inbound approach,
00:11:52:11 - 00:11:55:01
which is why we're always advocating with clients
00:11:55:01 - 00:11:57:12
that they're proactively reviewing those strategies.
00:11:58:00 - 00:11:59:15
That's right. That's a sound way to do things.
00:11:59:19 - 00:12:01:16
Peter, thanks again for joining us today.
00:12:01:16 - 00:12:02:14
Thanks, Doug.
00:12:02:14 - 00:12:04:21
It's such a rich and important topic.
00:12:04:21 - 00:12:08:05
I feel like we could go on for hours, but don't have the time.
00:12:08:14 - 00:12:10:17
And thanks again for joining us for another
00:12:10:17 - 00:12:12:18
episode of M&A Corner.
00:12:12:18 - 00:12:13:18
Please reach out to your
00:12:13:18 - 00:12:16:14
Mizuho | Greenhill banker to further discuss
00:12:16:14 - 00:12:19:02
activism, preparedness, and response.