Activists adopt a more subtle approach on M&A


Elliott Management in July received a bump in the consideration for its shares in SABMiller, which owns Miller Brewing Company

Activist hedge fund managers are known for taking stakes in companies and then pursuing more aggressive strategies that have toppled senior executives, led to drastic restructurings and even forced companies to sell themselves.

Their tactics, however, are changing. Increasingly, they are rattling their sabres when a company already has an offer but they object to either the buyer or the terms of the deal, an approach termed reactive activism.

Activist Insight, which monitors the activity of such investors, has identified 16 instances in which a hedge fund has tried to influence the terms of an M&A deal between the start of 2016 and mid-August.

The research, published August 12, also showed that reactive demands by activists accounted for 70% of total demands in M&A deals.

In contrast, there were 17 such instances in the whole of 2015 and hedge fund managers made only 59% of total M&A demands.

Elliott Management is one such example. In late July, it received a £1 per share “bump in the consideration for its shares in SABMiller“, according to Activist Insight.

Anheuser Busch InBev had offered £71 billion, or £44 per share, for SABMiller in November 2015 – but a fall in the value of sterling after the UK voted to leave the European Union on June 23 had swayed the economics of the deal towards a cash and stock offer.

A spokeswoman for the hedge fund manager declined to comment.

Activist Insight observed that European shareholders appeared more comfortable pushing to change the terms of an existing deal rather than pulling the deal altogether, given the millions companies spend on advisory fees in the first place.

David Saunders, founding managing director at hedge fund investor K2 Advisors, said he had seen a rise in activity by activist hedge funds.

“In this current world of low to no growth, corporate chief executive officers with an intent to grow, and with relatively high stock valuations, are driven towards looking at acquisitions to fuel growth,” he said. “We believe this makes fertile ground for M&A activity and the M&A cycle will continue.”

With core European government bonds yielding close to zero, Saunders said more and more investors were turning towards these activist strategies as they sought returns elsewhere.

Anthony Lawler, head of portfolio management for GAM Alternative Investments Solutions, agreed that activist levels were high.

“We think this is partly a reflection on value and non-activist positions not delivering for managers so they are looking for tools like activism to make positive change happen,” Lawler said.

HFR data on hedge fund performance in July showed that activist hedge funds were also among the winners in post-Brexit trading.

The HFRI Event-Driven Index, of which activist hedge funds are a subset, returned 2.1% in July as equity markets recovered while credit and arbitrage deal spreads tightened. The HFRI Event-Driven Activist Index returned 3.4%.

There is no hard data yet that supports market observations of more interest among hedge fund investors in those strategies, but Don Steinbrugge, founder of hedge fund consulting and marketing firm Agecroft Partners, said that activist funds would continue to be important in shaping all sorts of corporate deals.

“A large amount of money is controlled by activists and they will continue to be very active regardless of whether more money will be allocated to those strategies.”

Investor demand for activist hedge funds had dampened in the first six months of 2016 after months of poor performance and concerns about activist hedge fund managers crowding into the same trades.

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