Market volatility and economic slowdowns can often expose a company’s vulnerabilities, making it easier for activist investors to target those companies and campaign for massive changes, contends an article in Barron’s. And though the speed with which activist investors were going after companies in recent months, companies still need to be on the alert.
When the economy is robust and companies are lush with cash flows, it’s easy to hide any troubles that might be going on under the surface. But as that liquidity drains out, it’s much more difficult to keep those problems in the dark. That’s when activist investors move in, seeking out companies that are underperforming in sales growth, valuation, net margin, and 2-year stock performance, according to research from Goldman Sachs that is cited in the article. The bank looked at 17 years worth of data for component companies in the Russell 3000 index and highlighted 116 companies that have market capitalizations of over $5 billion, including Best Buy, Robinhood Markets, and 3M, that could potentially lure activist investors to target them.
And though there were 27 activist campaigns launched in the first quarter of 2023, down 24% from the last quarter of 2022 and slower than the pace of 148 campaigns for the whole of 2022, activists have been emboldened to go target such large-cap companies as Walt Disney and Salesforce, making it clear that companies still need to be vigilant, the article concludes.
