Shareholder Activism in the Industrials Sector: The New Normal
Thanks to the industrials sector’s long-standing reputation as a source of solid, steady returns, investors have often given management teams wide latitude to pursue long-term growth strategies.
Shareholder activism is continuing its recent rise, as weaker macro-economic growth, vague strategic plans, stagnant margins, complex business model, and under-utilized balance sheets have emboldened shareholder activists and even traditional long-term investors.
Today’s activists often want less growth spending, aggressive cost cutting, monetizing of non-core assets, high-level personnel shakeups and greater short-term returns for shareholders.
This trend is not going away, and few industrial companies are immune from increasing activist demands – even if the organization is thriving. These investors have both the capital and the willingness to challenge even the largest and most well-established industrial companies.
In response, industrial companies need a proactive strategy to head off activism well before it happens. Management must recognize the structural and financial factors that attract activists, and make it a priority to strengthen relationships during the proxy offseason with key investors, proxy advisers and the media.
Being a target of activism is no accident and neither is avoiding it. Understanding why and how industrial companies have been targeted by activist shareholders is critical to ensuring a company is not next on the target list.
About the Authors
Senior Managing Director