- Investment bank founder says companies settle too quickly
- Says activist influence is strong, though on the wane
Public companies have become too quick to accede to the demands of activist shareholders, which have gained unprecedented influence over corporate decisions in recent years, said Roger Altman, founder and executive chairman of Evercore Partners Inc.
“In my experience, the proclivity to settle is higher than it’s ever been. It’s too high,” Altman said during a presentation at Tulane University’s Corporate Law Institute Conference in New Orleans. “Right now the activists have the upper hand and they have a strong hand.”
Activist investors were successful in 75 percent of the campaigns they started last year, the highest success rate on record, Altman said, winning boards seats and other concessions from giant companies, as happened recently at insurer American International Group Inc. and technology provider Citrix Systems Inc.
Altman said dissident investors benefit from two trends. There are more activist funds than ever, with more than 350 firms holding about $122 billion assets under management in 2015, he said.
Activists are also winning the implicit support of once-passive, long-term investors such as T. Rowe Price Group Inc. and Wellington Management Group, Altman said. That gives the dissident investors outsize influence even when they a hold relatively small stake in their target companies.
“None of the multi-nationals are immune to this,” said Altman, who noted that his firm does not work with activists, only against them. “I don’t think it’s healthy.”
While activist investor activity should remain strong this year, there are signs their influence could begin to wane, he said. There was “relatively weak performance” in some activist funds last year, he said, which could spur investor withdrawals, making it harder for them to go on the offense. Hedge funds that use an activist strategy were up 0.24 percent in 2015, as compared to 8.47 percent the year before, according to Hedge Fund Research.
Large mutual fund investors such as BlackRock Inc. are increasingly siding with company management teams in proxy contests, he said, citing non-public data that Evercore has collected on recent shareholder votes.
“This is an important development,” he said. “They expect to own these shares more or less indefinitely.”
Evercore is a boutique investment bank, which means it primarily offers advice, unlike the biggest banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. that have extensive trading and lending operations. The mergers and acquisition boom has been good for boutiques like Evercore, Moelis & Co., Lazard Ltd. and others, which argue that their focus on old-school investment banking advice means they have fewer conflicts of interest than the megabanks.
Evercore won roles on two of last year’s biggest deals, advising DuPont Co. on its nearly $66 billion merger with Dow Chemical Co., and handling a fairness opinion for EMC Corp. in its $67 million sale to Dell Inc.
Last year’s merger boom isn’t over yet, said Altman, who served as a deputy secretary of the U.S. Treasury Department in the first Clinton administration, before starting Evercore in 1995.
“M&A volumes will remain healthy” in 2016, he said. “I don’t see a major slowdown or weakness.”