Activists Targeting Small-Cap Companies

Shareholder activists are finding more success targeting smaller-cap companies than mid and large-cap ones this year. The reasons for this are varied. Some activists may be able to acquire a larger stake in a small company, which can make a big difference in their ability to effect change. Additionally, the costs of engaging in a prolonged proxy battle can be prohibitive for some issuers. Other factors, such as concerns about a potential recession, may also come into play and impact the outcome.

It's interesting to note that the new rules of the universal proxy card (UPC) could potentially be driving the successes found at small-cap targets. According to FTI Consulting, this could be because the rules make it more burdensome for smaller companies, making them more susceptible to activist campaigns.

Despite the high failure rate for activist campaigns in large-cap companies, there seems to be some hope for them. For instance, the restaurant sector is currently struggling with inflation, which has led to rising food and labor costs and lower consumer sentiment. As a result, sales growth has slowed down and there has been an uptick in activist activity, especially in the casual dining segment.

Other industries particularly vulnerable at this time are biotech and automotives. FTI attributes this to a softening demand for higher ticket goods and weaker financial conditions - both the result of higher interest rates. This climate is likely to continue as long as borrowing costs remain high.

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