00:00You know, one of the points that you've made is that yes, they're busy, but they're less willing to run
00:05proxy fights. Why is that the mix?
00:08You know, I think there's a recognition on both sides, on the side of the company and on the side
00:12of the activists. The proxy fights are long. They're expensive. They're hugely distracting. And actually, if you're an investor in
00:18a company, you ultimately as an activist still want that company to do well. You don't want them to be
00:22distracted by a multi-month proxy fight.
00:25So I think also companies are looking at this and saying, if I can push back, if I can get
00:30to a good outcome and I can do it in the way of a settlement, as opposed to going to
00:34a three or four month journey through a proxy fight, that may be better for me.
00:38And so it's all a question of can you get to the right outcome? Because sometimes the activist ideas are
00:43really about accelerating a time frame. It's maybe about stretching the balance sheet.
00:47But if we can get to the right answer on those things without compromising the forward trajectory of the company,
00:53I do think companies are looking for the right off-ramp in the right situations.
00:57Have you been advising them to find that line of, yes, acknowledging the activists, maybe moving forward some of those
01:01things, but not a complete cave-in to what their demands are?
01:04So it's a great question. I think the way to think about this is that the activist is just one
01:08investor. It's one investor. It may be a loud investor.
01:11They may have a point of view, but there are other shareholders that have collectively a much larger and a
01:18louder point of view.
01:19And so we encourage our clients to really tap into that, because if you're getting support from a broader group
01:26of your supporters and your shareholders,
01:28actually gives you the mandate and gives you the license and it gives you the platform to push back on
01:32the activist far more aggressively.
01:34And I think companies have started to find that right balance.
01:37And that's why I think you're seeing a little bit more of these detente-type situations as opposed to a
01:41full-blown, you know, knock-em-drag-em-out proxy fight.
01:44Well, what do you make of the campaigns, you know, Ackman and Univision, Irenic and Snap, where there is a
01:50controlling shareholder in these companies?
01:52So by definition, the amount of push you can have is quite limited.
01:56Are these just a campaign via publicity, I guess? What's the play?
02:02You know, it's a good question. I think that you, when you have a controlling shareholder and an activist comes
02:07in trying to oppose a controlling shareholder,
02:09it's a tough call for the activists. I actually think it puts a company in a strong position.
02:13And we remind companies that even if you don't have a controlling shareholder, if you can get the support of
02:18enough shareholders,
02:20it can actually create almost like a synthetic block in much the same way.
02:24And so, you know, our view is stand your ground, check with the other shareholders. The activist is simply one
02:29voice.
02:30So, Avi, you spend a lot of your time talking to CEOs, a lot of time in boardrooms.
02:34So there's been a lot of activism, a lot of M&A as well.
02:38What is the general sense that you're getting from corporate America at this point?
02:42So, you know, it's interesting. We're coming off of a very strong Q1 around M&A activity, but it's really
02:48a continuation.
02:48I think one of the best first quarters ever, right?
02:49Yeah, absolutely. But it's really a continuation of a really strong Q3 and Q4 from last year.
02:54So we're in this now several quarter period of time where we're seeing incredible ambition in the boardroom.
03:00I think the nature of that ambition comes from the fact that there's a recognition that scaling up and having
03:07size may be a competitive advantage, right?
03:09Said another way, being subscale could be a detriment. And so I think companies are looking for ways to do
03:14that.
03:15But you've also got very healthy financing markets, which allow you to dream big and to execute big deals.
03:21And these financing markets are not just, you know, very well functioning. They're incredibly deep.
03:25The cost of capital is even before any interest rate cuts that we may have later this year.
03:30The cost of capital is still quite attractive. And the credit spreads of which you're financing at are near all
03:35-time tights.
03:35And so the financing market, the ambition in the boardroom, the scale and the search for scale and the competitive
03:41advantage that that can provide,
03:42I think it creates a good brew for, you know, the M&A momentum to continue.
03:46Is that true? We're just having a conversation about tech M&A, and I wonder those financing markets being open,
03:52how equally distributed is that?
03:54If you're a software company trying to tap the financing market, do you find the same success?
03:58I think the financing markets are very discriminating, and some sectors are up, some sectors are down.
04:03And even within sectors, you've got winners and losers. And you could have within a given sector, you know, companies
04:08that are trading at attractive valuations,
04:10companies that are trading at more lagging valuations. So I think you have to just know where you stand.
04:14And this gets back to kind of like, you know, finding your moment. And if you're in a strong position,
04:18capitalizing on it and doing so, you know,
04:20at a moment where you might be the first mover advantage.
04:22One of the things I know you also write about of what's fueling M&A is AI and some of
04:28the tailwinds from that.
04:29But this is something, I mean, you can't necessarily tap an executive or bring someone in that has decades of
04:34experience,
04:35just given how new this is. So are we all kind of flying blind? Are we putting the plane together
04:39as we're flying it?
04:41How have you been advising your clients when this might be a motivating factor for M&A?
04:45So I think the way we break it down is if you think about what AI is going to do
04:49for companies,
04:49it's going to provide competitive advantages. It has the potential to be hugely disruptive to certain industries.
04:55It also has the potential to change the cost curve of certain industries.
04:59So you want to invest in AI and make sure you're doing that ahead of your competitors and making sure
05:03you're staying in front of them.
05:04At the same time, you want to make sure your business is AI proof, right?
05:08A lot of what's happening in some of these sectors that are selling off and valuations that are coming down
05:13is that there is a recognition amongst investors
05:15that maybe AI poses a huge threat to your business.
05:18And so I think you've got to look at both sides of AI, capitalizing on it, using it for efficiencies
05:23and productivity,
05:24and at the same time making sure your investors and your constituents understand that your business is actually defensible against
05:31an AI onslaught.
05:32By the way, I think there are a lot of folks who expected M&A to slow down on the
05:36onset of the war in Iran,
05:37and part of that was higher energy prices, the concern about what that means for pricing.
05:41Just quickly here, Avi, is there a scenario where if we do get a prolonged energy shock to the system
05:47that it could slow down M&A,
05:48or do you think we go full steam ahead regardless?
05:50Look, I think that these are all tailwinds right now, but you've got to look at it from the standpoint
05:55of if this is prolonged, as you mentioned,
05:57I think this can change real relatively quickly.
05:59I think we need to be very sanguine about the fact that right now the impact to the U.S.
06:04economy,
06:04the impact to inflation has been modest, but the longer this goes on,
06:08I think those can turn into more significant headwinds, and I think they can affect M&A,
06:13but they'll do that by affecting the tone of the boardroom, right, that people will look at this and say,
06:16if I don't have as much visibility on where my business is going standalone,
06:20then the idea of a combination or doing something material is something that maybe I'll put on hold.
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