Moody’s Investors Service said shareholder activists will be busier in 2017, pursuing targets in North America and elsewhere.
The ratings agency noted that while “activists still have the spending power to take on even the largest companies, they’ll be challenged to find attractive targets and to persuade them to implement shareholder-friendly changes.”
Chris Plath, Moody’s vice president and senior credit officer, said, “Rising M&A activity, as well as companies’ growing cash piles and abundance of investment capital will likely produce more activist campaigns in the year ahead.”
Plath wrote Moody’s latest activism report, “Shareholder Activist 2017 Outlook: Activist Will Be Busier, but Scope of Opportunities May Curb Enthusiasm.” He noted that headwinds from stretched equity market valuations, rising interest rates and few clear opportunities in large-caps could result in just a modest uptick from 2016 levels.
Related Articles
Last year, activists targeted mainly midsize and smaller firms, with only occasional activity at large firms. That is expected to continue into 2017 as it’s easier for activist to gain a foothold and exert leverage at smaller firms, which have fewer resources to mount defenses against insurgent campaigns.
You May Also Like
Moody’s concluded that technology companies will remain favorite targets because of large cash balances, low debt levels, steady cash flows and relatively small dividend payments. Further, M&A activity has been a driver of the focus, with activist pushing for smaller tech firms to be acquired by strategic buyers or financial sponsors.
The ratings agency also said it expects international activism to gain steam, “given the relative lack of low-hanging fruit among U.S. large caps, as both U.S.-based and local activists look for new targets and ways of putting investment capital to work.” Moody’s also said that wherever the activity occurs, “activism will usually be credit negative for the company” because it increases event risk for credit investors and promotes financial policies aimed at expanding equity returns for shareholders.