After a decline in recent years, activist campaigns ending in formal settlements for board seats at U.S.-based companies have increased by almost 14%, with 41 recorded so far this year, as of June 7, compared to 36 in the same period in 2022.

Over 56% of resolved activist demands for board representation at U.S.-based companies ended in a formal settlement agreement so far this year, according to Insightia’s Activism module. This also represents a rise, with fewer than 50.5% of such demands ending in settlements during the same period each year since 2017. The low, in 2017, saw just 40.2% of board demands end in a settlement.

Settling is always one of the targeted outcomes as Mila Brogan, vice president of Kingsdale Advisors, told Insightia. “With the universal proxy, higher expectations, and increased shareholder activism and engagement overall, clearly one of the main goals for activists is to settle on some of these things. So, yes, I think you are likely to see an increase as the year continues.”

A sector-wide pursuit

The technology sector, a traditionally attractive market for activists, has seen nine formal settlements so far this year with key campaigns including one that saw Indaba Capital Management sign a cooperation agreement with online business-to-business platform ON24 to add two directors to the board and return cash to shareholders. In the same period last year, activists had only secured eight formal settlements with companies in the sector.

In second place, the healthcare sector has recorded eight formal settlements, including key campaigns such as Caligan Partners winning a board seat and convincing Anika Therapeutics to expand its stock buyback program. Hudson Executive Capital also settled with medical device company ViewRay for a board seat in January. Activists only achieved six formal settlements with healthcare companies over the same period in 2022.

The industrial sector came in joint-second place with eight formal settlements so far this year compared to five in the same period in 2022. The next most popular was real estate, which totaled four formal settlements compared to just one by this time the year before.

However, such agreements can be played out sector-wide as Ele Klein, partner at Schulte Roth & Zabel told Insightia. “There are certain industries that lend themselves to activism more, like how the tech sector is more popular among activists. But at the end of the day, the settlement question is based upon chances of success, and that’s not really an industry driver, that’s a company driver.”

Reimbursing expenses

Reimbursement of fees remains a common feature of such deals with U.S.-listed companies agreeing to reimburse the activist’s related expenses in 27 out of the 41 formal settlements so far this year. In the first five months of 2022, 22 out of 36 formal settlements included such clauses.

One of the season’s more heated settlements involved mattress manufacturer Purple Innovation which reached a settlement with 44% shareholder Coliseum Capital Management under which three new directors would be appointed and incumbent director Adam Gray, who is managing partner at Coliseum, would take over as board chair. In February, Coliseum Capital took Purple Innovation to court in an attempt to block the company from issuing preferred stock which it argued was designed to entrench management.

Under the deal terms, two current directors stepped down, the company terminated its “poison pill” and the activist withdrew the litigation. Coliseum also agreed not to exceed 44.7% ownership of the company for a 12-month period, while Purple agreed to reimburse the activist’s legal fees and expenses up to $4 million.

Activist veteran Carl Icahn also entered into a settlement agreement with consumer goods large-cap International Flavors & Fragrances (IFF) in February this year, winning a second board seat in a little less than a year after his first campaign at IFF in early 2022. Both parties agreed to take responsibility for their own fees and expenses in connection with the agreement.