Law360 Quotes Andrew Freedman on Activists’ Role in M&A in 2019

Co-Head of Olshan’s Shareholder Activism Practice Andrew Freedman was quoted recently in a Law360 article (subscription required) on how activist investors are expected to transform business arrangements in 2019, particularly M&A deals. Activist campaigns relating to M&A increased to 253 in 2018, a significant rise from the 206 M&A campaigns in 2017. The article predicts three ways that activists will shape transactions this year, including urging target companies to consider selling their non-core assets or selling their business altogether. Mr. Freedman comments, “Following on the high level of M&A activity in 2018, we're still in a remarkably favorable M&A environment this year. And some industries are potentially facing macroeconomic headwinds, which for activists and other investors raises the question, is the company worth more now in a sale at a premium than the prospect of declining operational performance and share price?” Supporting this point, the article cites Activist Insight’s most recent Investing report, which recorded 71% of M&A-related demands advocating for a transaction in 2018, consistent with 68% in 2017. Another prediction for 2019 is that activists will continue to challenge announced deals, especially using bumpitrage, an increasingly common tactic whereby an investor can improve a deal’s terms or else terminate the deal entirely. “Given all the time, energy and resources that two companies expend toward completion of an M&A deal,” Mr. Freedman explains, “a bump of a dollar, two dollars or even more can easily be rationalized in order to salvage a deal and bring in the shareholder vote.” The third trend to expect from some activists in 2019 is the use of private equity as an alternative to traditional activism, where an investor buys a public company him-/herself in order to enact the perceived necessary changes essential to the company’s success. Mr. Freedman elucidates the process, saying, “Rather than just taking their 5 to 10 percent position and pushing for a company to make certain operational changes to create value, the investor is saying, ‘Hey we can buy this outright and implement our operational plan out of the scope of the public markets and generate lots of value here.’” While not as common an investing strategy as M&A, such a situation could provoke the target company’s leadership to weigh the advantages and disadvantages of an acquisition by any number of potential buyers. Mr. Freedman concludes, “We're seeing that certain activist investors are not just making this call out to public companies to explore a sale in a process but rather putting their hat in the ring as one of those credible buyers themselves, which is even a more direct way to put a company into play.”