2021 has been a busy year for activist funds, with big-name investors like Starboard Value, JANA Partners and Carl Icahn pushing for meaningful change at a number of companies.
In all, activist shareholders launched 89 campaigns last year across a range of sectors, including information technology and consumer discretionary. These investors also used various methods to improve shareholder outcomes, including conducting election campaigns, despite owning less than 5% of a company’s common stock. This is known as “below the threshold” activism.
Here’s a look at how 2021 has panned out for activist funds.
behind the numbers
Total activism: Overall activism remained remarkably consistent from 2020 to 2021. In both years there were a total of 89 new campaigns. This remains well below pre-Covid years (102 in 2019 and 113 in 2018). We expect that as Covid subsides people will go back to work in person and things will return to normal and activism will also return to its old levels.
What is unique about 2021, however, is that it was the first year since we began reporting “under the threshold” (or UTT) activism in 2014 that the number of UTT situations exceeded the number of 13D situations. In 2020, there were 41 13D material campaigns and 48 UTT campaigns versus 48 13D material campaigns and 41 UTT campaigns. We believe this reflects two main things: (i) activists increasingly being able to be more effective with lower percentage holdings, and (ii) activists using swaps and derivatives to circumvent 13D requirements while exceeding 5 % economic commitment.
Since 2017, the number of 13D filings has declined each year with only 41 new 13D filings by activists in 2021, compared to 48 in 2020, 61 in 2019, 65 in 2018 and 71 in 2017 Number of 13D campaigns, the average market capitalization of the target companies is the highest it has been since 2015. Additionally, despite fewer 13D signups, the total dollars invested in new 13D campaigns ($10.5 billion) for the 41 such signups is about the same over last year as it was for the 48 13D signups in 2020. Both years significantly exceeds the $8.8 billion invested in the 61 13D filings in 2019.
The number of UTT campaigns in 2021 returned to 2018 levels of 48 engagements after stagnating at 41 engagements in 2020 and 2019. While the total dollars invested in new UTT filings increased by 27% in 2021 from $8.2 billion in 2020 to $10.4 billion in 2021, this is still well below the $17.7 billion dollars from 2018.
Activist Investors: While we’re still living in a global pandemic, the activist investor base looks like 2020 with the reemergence of a few major investors. For starters, Elliott Management and Starboard were both among the busiest in 2021, albeit down slightly from last year. Elliott had seven campaigns in 2021 versus nine in 2020 and Starboard had seven campaigns in 2021 versus eight in 2020. Also among the most active was JANA Partners with seven campaigns in 2021 versus just one in 2020. Carl Icahn also participated to four campaigns for 2021 compared to two in 2020. We also see consistency with 2020 in terms of diversity in the 13D applicant base, with 34 unique applicants in 2021 and 33 unique applicants in 2020 versus 49 unique applicants in the Year 2019. This continues meaningfully because when a strategy becomes increasingly challenging, as activism has done due to Covid, investors using activism as a core strategy will generally continue to use it.
Industry sectors: The top four industries targeted in 2021 were: (1) Information Technology, (2) Consumer Discretionary, (3) Finance, and (4) Healthcare, and these industries accounted for 68.54% of total activism in 2021. In 2020, the top four targeted industries were (i) Consumer Discretionary, (ii) Information Technology, (iii) Healthcare, and (iv) Industrials, four of which accounted for 56.18% of total activism in 2020. Industrials left the top 4, going from 10 engagements (11%) to five engagements (6%), and was replaced by Financials, which went from six engagements (7%) in 2020 to 13 engagements (15%) in the year 2021 rose. Additionally, this is the first time since 2016 that information technology has surpassed consumer discretionary as the hardest-hit industry. Another notable change was Energy’s drop from eight campaigns in 2020 to just two in 2021.
Results: Activists were relatively even with the results of their campaigns in 2021 compared to 2020 based on the 40 13D and UTT campaigns in 2021 that were decided (excluding the 38 outstanding, nine withdrawals and the two campaigns at which the activist has not taken specific action (activist action). The percentage of settlements (68% in 2021 vs. 62% this time last year), full wins (3% in 2021 vs. 4% this time last year), and losses (30% in 2021 vs. 22% around this time last year) remained fairly consistent.
A look at the updated 2020 data (which is more complete than the 2021 data due to many upcoming engagements) reveals a remarkable revelation. In 2020, 68% of 13D engagements were completed versus 38% of UTT situations. Furthermore, only 18% of decided 13D situations in 2020 resulted in a loss versus 34% of decided UTT campaigns in 2020, while 15% of 13D engagements resulted in a full or partial win versus 28% of UTT situations have led to. Additionally, this aligns with the total number of 13D and UTT campaigns between 2014 and 2020.
Ken Squire is Founder and President of 13D Monitor, an institutional research service on shareholder activism, and Founder and Portfolio Manager of 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist assets.