What is an activist investor and what do they do?
Just as angel investors provide financial support and guidance to startups, activist investor-s offer their own brand of support to established companies. But they have a more hands-on approach.
Activist investors are individuals or groups that make strategic investments with the aim of boosting shareholder value. They purchase sizeable quantities of undervalued company shares and then work to influence corporate decision-making. Their efforts range from general improvements through restructuring measures all the way up to drastic changes in leadership or strategy.
Activist investors can be powerful agents of change in businesses, driving progress and empowering management to think differently. However, their aggressive approach may also give rise to a perception that they are only interested in short-term gain. This leads them into risky territory where ‘friend’ or ‘foe’ becomes an ambiguous description. It’s clear that context is everything when determining whether activists have positive or negative intentions.
The benefits of activism for shareholders
As an activist shareholder, you have a unique opportunity to make your voice heard and shape the direction of the company. Your vested interest in its well-being can be instrumental in enacting positive change for all shareholders. From influencing decisions made by the board of directors down to making sure that stock performance is optimal.
Activism provides unprecedented access not just for improved profitability but also for long-term success.
Shareholder activists strive to create positive transformation within corporate entities. They drive forward proposals such as strategic capital allocation, mergers, and acquisitions, or leadership shifts. This can vault the performance of these organizations in a beneficial direction.
By engaging with management and pushing for change, activist investors can help to steer the company in a direction that will be more profitable.
In addition, activism can also help to build shareholder value. By flagging up issues and pushing for change, activists can bring problems to the attention of management and help to catalyze positive changes that increase the value of the company.
Finally, activism can also help to create a more stable and efficient market.
In such cases, the activist investors’ actions are called Hedge Fund Activism. Hedge fund activism refers to the actions taken by activist hedge funds to influence the corporate governance and decision-making of companies in which they have invested.
How Successful Are Activist Investors?
It depends. Activist investors usually target underperforming companies with good potential. By buying up shares, they gain enough influence to make changes that they believe will improve the company’s performance.
In many cases, these changes do indeed lead to an increase in share value. However, there are also examples of activists becoming too involved in a company’s affairs and damaging its prospects.
Thus, it is clear that activist investors can both help and hurt a company’s performance. In most cases, however, their involvement does result in positive changes for the company.
How Do Activist Investors Pick Firms?
Activist investors are highly selective and strategic when identifying target companies to invest in. The take into consideration a range of complex factors that help them determine their decision.
The success of a company depends on its ability to nurture engaging relationships with shareholders. In such cases, activist investors look for companies that demonstrate an eagerness by taking stakeholders’ feedback into consideration and responding accordingly.
Another important factor is the firm’s financial position. Many activists seek out firms that have a strong financial foundation and are underappreciated by investors – characteristics that can provide greater potential for growth in the long term.
When considering a firm to invest in, activist investors assess the potential for change and evaluate entrenched management teams or boards of directors.
This helps ensure that their demands won’t go unheard, giving them an extra layer of security against unexpected changes in plans. Being well-informed about these factors gives activists higher chances for success when selecting investments.
Does Activist Investing Work in the Crypto World?
The fast pace at which FOMO (Fear Of Missing Out) and FUD (Fear, Uncertainty, Doubt) circulate in the industry makes it effortless for activist investors to communicate their message. For example, some activists have achieved success in the crypto world.
One notable example is Brock Pierce, an early investor in Bitcoin who went on to co-found Block.one, a blockchain software company.
Pierce is a vocal supporter of cryptocurrency regulation. His efforts have brought us one step closer to the approval of Bitcoin’s first exchange-traded fund.
His activism offers enterprising investors an exciting opportunity to capitalize on crypto markets’ potential for lucrative returns. This is a testament to the power of activism in the financial industry, and the impact that dedicated and knowledgeable investors can have on shaping the future of new and emerging markets.
Why do some companies resist activist investors?
It’s been said that activist investors are like renovators, they always want to change things, even if it wasn’t broken in the first place.
Corporate resistance to shareholder activism is often a response from management to preserve their job security and control of the business’s day-to-day operations. Activist investors can push for significant changes in the way a company is run. Such as demanding more financial transparency, restructuring leadership, restructuring corporate policies, or demanding asset divestment.
Resistance often stems from a business refusing to accept that kind of serious change or interference from outside forces.
In addition, companies may resist activists due to conflicting interests between shareholders and executives. Activists are often driven by short-term gain, while executives may prefer an approach focusing on long-term growth potential.
Lastly, some companies simply view activist campaigns as hostile since they can involve public criticism of the leadership and structure of the organization. All these factors contribute to why companies are reluctant to accept activism.
How can companies prepare for an activist investor’s involvement?
Companies can be proactive in preparing for the potential input of an activist investor by reflecting on what changes they may suggest, assessing their own policies and procedures to ensure alignment, and recognizing which stakeholders would be affected.
To maximize success, it is essential to be proactive and consider the wide range of possible outcomes that could arise if the investor becomes involved.
Companies can ensure their success by taking the initiative and crafting a message that strategically communicates restructuring plans to investors and stakeholders.
By proactively addressing potential risks posed by activist investor involvement, companies will be able to secure successful outcomes and protect their brand reputation.
What should companies do after an activist investor has taken over?
After an activist investor has taken over a company, it’s important for the leadership to work together that is in order to navigate the new landscape and implement any changes that have been proposed. Many companies benefit from developing a strategy together with the investor. As it can help to ensure that all parties are working towards the same objectives.
This should include looking carefully at internal processes, and financial projections, and understanding how their product or service fits within the wider market. The ultimate goal is to make sure that any adjustments made to operations will bring long-term success beyond the court of the investor’s tenure.
Tips for becoming a successful activist investor
Becoming a successful activist investor requires more than simply buying shares in a company and agitating for change. It takes a careful blend of research, analysis, and networking to truly make a difference.
Here are a few tips for becoming a successful activist investor:
1. Know your target:
Before you can start agitating for change, you need to know who or what you’re trying to influence. Do your homework and research the company, its shareholders, and its management team.
2. Build a case:
Once you know your target, it’s time to start building a case for change. This means conducting research, analyzing financial statements, and identifying potential areas of improvement.
3. Network with other investors:
Chances are, you’re not the only one who wants to see change at your target company. Start networking with other like-minded investors and form a coalition to increase your chances of success.
4. Be prepared to compromise:
Change seldom happens overnight, and it’s important to be prepared to compromise along the way. Be flexible and be willing to work with management to find solutions that benefit all parties involved.
By following these tips, you can greatly increase your chances of becoming a successful activist investor.
