With COVID-19 disruption and recent market volatility creating a target-rich environment, activist investors are ramping up demands for mergers and acquisitions. Quick campaigns against big companies appear to be the favorite tactic this year.

The first half of 2022 marked the first time since 2018 where activists ran more “push for sale” campaigns than in the first half of the previous year. While “push for sale” campaign frequency had been on the decline leading up to 2021, a resurgence in the second half of 2021 was backed up in the first half of 2022, when the 20 campaigns were a 33.3% increase on last year’s first half.

The reasons for the demands vary.

“Push for sale” demands have a much higher chance of succeeding than other activist demands. Since the start of 2017, 25.32% of resolved activist campaigns have been successful, while 29.97% of “push for sale” campaigns have been.

Bruce Goldfarb, the CEO of Okapi Partners, told Insightia in an interview that investors “will go public with their desire for a company to be sold, in order to increase the chance of a deal going through.”

A post-pandemic push?

An activism defense expert noted to Insightia that while “push for sale” campaigns have always been a recurring theme, “Activists are using the current market conditions and volatility post-pandemic as benchmarks to determine potential windows for action.”

A separate source noted that a hangover effect of the pandemic is a growing number of companies with laggardly stock performance, despite strong underlying assets and infrastructure.

According to an S&P Global Market Intelligence study into the industries most affected by the pandemic, over 80% of all industries have seen their probability to default increase.

Industries that have been affected most by the pandemic have created a “target-rich environment” according to the source, exemplified by 15 of the 57 companies targeted by “push for sale” campaigns since the start of last year being from industries such as Road & Rail, Air Travel, and Specialty Retail, where the probability to default has increased by over 115%.

Big wigs target big caps

Another trend this year is activists targeting much larger companies than in previous years. While in 2021, 2.5% of companies targeted were large-cap, as of June 30 this year that number has risen to 10%.

Elon Musk at Twitter, Land & Buildings and Prologis at Duke Realty, and JetBlue Airlines, TIG Advisors, and Discovery Capital Management at Spirit Airlines, mark some of the biggest “push for sale” campaigns so far this year.

For Peter Michelsen, head of technology boutique Qatalyst Partners’ activist practice, investors are more fearful of betting on smaller companies; “In times of volatility you will see a flight to quality and activists are going after targets that are better capitalized more stable and less likely to have significant continued downside,” he said. “Activists are more willing to invest billions of dollars into a large-cap company with moderate upside but limited downside because the risk and reward is better in a recessionary environment than at a small-cap company where the downside is much more magnified.”

A financial services specialist speaking to Insightia on condition of anonymity said long-term shareholders were likely reticent to rotate their portfolios, if they are generally satisfied with the investment. While those that do make public calls for sales are looking for “easy wins” to improve the standing of their funds and assets under management.

In the case of mid-cap companies, where investments may be less liquid, investors can achieve liquidity from their investments by trading up to an offer price, following a public “push for sale,” Goldfarb added.

In and out

The campaigns at Twitter, Duke Realty, and Spirit share a common theme, as their respective activists held stakes in the companies for less than a financial quarter before making a demand.

Indeed, according to SEC filings reviewed by Insightia for activists that have run “push for sale” demands since the beginning of 2021, 50.75% of “push for sale” demands were initiated within 90 days of the activist’s first public notified holding

Okapi’s Goldfarb noted that investors can use “push for sale” campaigns to alleviate the pain of an underperforming investment, stating that investors can “believe getting the deal done is going to be the best way to achieve value.”