00:00Carmen, can I start with you? Where are you seeing the most, the most, the bulk of activist interest right
00:05now?
00:05What type of companies or what sectors?
00:08I mean, activists are looking for a specific type of company, and it really falls into three key criteria.
00:12Number one, you've got to be a fundamentally good business.
00:15Number two, you've got to be undervalued.
00:16And number three, and this is really important, you've got to be a company where the fix can be near
00:20term and it's pretty clear.
00:22So where we're seeing all the activity, I think the data speaks for itself.
00:25We're seeing it really concentrated within the technology and industrial sector.
00:28It's not because of sectors themselves in particular, but because in those sectors, there's a disproportionate number of companies that
00:34fit the criteria of targets that activists like to seek.
00:37Would you agree, Sean, it's not necessarily the sector.
00:39It's just it so happens that they kind of have that criteria that makes sense for activists.
00:42Yeah, it's, you know, people focus on vulnerability to activism.
00:46But as Carmen said, there's got to be a way for the activists to make money.
00:50And, you know, we're also just coming off a record first half of the year in terms of the M
00:54&A market.
00:55Guess what? The number one platform for activists is push the company to sell itself.
01:00And so not surprising that has driven the demand for activists.
01:05By the way, we have just seen a lot of volatility within single name stocks themselves.
01:09I mean, like IBM can sell off 22 percent in one day on a small release.
01:13Sean, does that increase activism or does it make them a little wary when the stock is so volatile to
01:18really jump in?
01:18Well, yeah, we're spending a lot of time with clients facing what we'd call a very jittery market.
01:24So, you know, whether it's, you know, a big miss or even the slightest of misses on earnings, you're seeing
01:29massive swings in stock prices.
01:31So that makes that makes companies feel vulnerable.
01:34Like, no doubt, activism is just one piece of the vulnerability puzzle there.
01:39But I think the question for the activist, you know, investor would be, yeah, they're vulnerable, they're cheap, I can
01:44buy a big stake.
01:45But, like, can I make money?
01:47And is this a falling knife?
01:49Is this a permanent re-rate of the stock?
01:51Or do I actually have a lever to make money?
01:53And when we're spending time with clients trying to help them prepare for this, that's the main area of focus.
01:58It's like, how do you anticipate those arguments and be ready, you know, if they throw that in your face?
02:04I'm guessing you've had similar conversations with clients, Carmen.
02:07And I'd have to imagine, I mean, has that been happening a lot in software, like among software clients who've
02:11seen their stock fall 20%?
02:13And, yes, an activist could come in, but maybe it's a falling knife?
02:16Yeah, absolutely.
02:16I think this is a really great question.
02:18I mean, we've been seeing this across sectors, but I think it is concentrated in the SaaS sector in particular.
02:22This has been going on for several months.
02:24And, I mean, to Troy's point, I mean, you know, just because a company is cheap doesn't necessarily mean it's
02:28a good activist target.
02:29The activist needs to find a pathway to create returns and create returns in the near term.
02:33So, an activist is going to be looking at, you know, are there fixes?
02:36Are there capital allocation fixes?
02:37Are there ways to streamline the portfolio?
02:40I think, you know, the issue for certain companies right now is activists don't know.
02:44There's too much uncertainty in the market.
02:45So, activists don't know whether to jump in or not.
02:47So, just because a stock is cheap, it may increase vulnerability and create opportunities, but doesn't necessarily guarantee an activism
02:53campaign.
02:54You know, in looking through some of the numbers that Scarlett had, so first half, really big year.
02:58But proxy fights was still incredibly limited.
03:01The ratio is completely out of whack.
03:03I think it's something like nearly 200 campaigns, but only three proxy fights?
03:09Carmen, that seems very odd to me.
03:10What is that?
03:10Is it just activists just straight out don't want a proxy fight?
03:13Or are these companies that are just rolling over, handing the keys to the kingdom, also hoping to avoid a
03:18proxy fight?
03:18You know, I think it's somewhere in between.
03:20I think the tactics have definitely shifted.
03:22One of the key things I think we need to bear in mind is proxy fights are expensive and expensive
03:26for both companies and for the activists.
03:28And I think a lot of companies, well-advised boards and activists who become more sophisticated, realizing, well, why run
03:34a multimillion-dollar campaign when you could probably get more done by having a constructive conversation with boards who typically,
03:40more so than ever before, are more open to at least listening to the ideas activists have to present.
03:44Well, Sean, I know when we had talked in April, you said something similar, like too many companies are capitulating.
03:49Did they hear your calls maybe to put up a bigger defense?
03:53Yeah, look, I wouldn't read too much into the low numbers there.
03:57I think the number, as you saw, of actual activist campaigns remains at record highs.
04:02Just because there are fewer fights doesn't mean Carmen and I are both extremely busy fighting these off in the
04:08background.
04:08And I think also the prevalence of the M&A demand doesn't really lend itself as much to a fight,
04:14right?
04:14Like an activist, their biggest lever is public pressure.
04:18It's not, like their goal in life is not to run a proxy fight, win a proxy fight, get on
04:22the board.
04:22Their goal is to make money.
04:23And I think what we've seen is they've been effective using that leverage in different ways.
04:28So I don't, no board member watching this, I think, should take comfort from that low number, unfortunately.
04:35Would you have the same message to the boardroom, Carmen?
04:37Yeah, I think boards are so well advised today for the most part.
04:40They understand that it is valuable to hear what their shareholders think about the company.
04:45And that includes activist investors.
04:47I think boards are willing to listen.
04:49And that leads to constructive engagement.
04:51But, you know, I wouldn't say it.
04:52I think the number of proxy fights doesn't necessarily mean that activists are stepping back and they've grown soft.
04:57Carmen, I also just, I saw you flag this really big uptick in financials, in financials being an activism target.
05:05What's going on there?
05:06I mean, I think it goes to my earlier point about activists looking for kind of companies that fit a
05:10certain set of criteria.
05:11And I think when you look at the financial sector, there are certain companies that do fit this target that
05:16is very suitable for activists.
05:17What does that mean?
05:18You know, you've got companies that have been, their valuations have relatively stagnated.
05:22You've got financial companies where they're kind of collection of different businesses that could be right for simplification.
05:26And then you've also got a lot of banks and similar companies in the financial sector where there's got a
05:32lot of cash on the books.
05:33And that creates an opportunity for better capital allocation, potential returning capital to investors.
05:38That gives an activist a lot of different levers to generate returns.
05:41And I think that's why we're seeing a concentration of activity in the financial services sector.
05:44Are you seeing something similar, like a big uptick in that sector?
05:46Yeah, I think behind tech and industrials, the financial, and really it's been driven by one or two hedge funds
05:54going after a lot of bank holding companies.
05:57So I think those, the sort of persistence of those funds has sort of driven these numbers of the last
06:03year.
06:04I just wonder when it comes to transformation, to squeeze out a profit.
06:08You could say this among banks, you could say it among other firms, but Sean, when activists come in, I
06:13wonder how they're approaching AI.
06:15Is it AI can come in and make this company a lot more productive?
06:18Or is it like, use this AI and then you can fire some people?
06:21And that's a great way also to squeeze profit out.
06:23Like how much of it is transformational, just kind of chipping away at the edges?
06:27So I think activists are not experts in AI.
06:30You know, they are generally experts in financial engineering, in capital allocation, things of that, and pushing companies to sell
06:39themselves.
06:39It doesn't stop them from making operational suggestions over the course of the history of activism.
06:45AI is no different in that regard.
06:47And I think, Danny, it's both.
06:49It's, yeah, like in some companies, in large companies, you've seen them push for, yeah, utilize AI, you know, push
06:56for significant rifts.
06:57It could be you're not using AI, you should invest in AI and, you know, have a better strategy.
07:04Really, it's just a powerful suggestion.
07:07It's the flavor of the month.
07:09And, you know, companies are going to have to react and be prepared.
07:12Yeah, Carmen?
07:12Yeah, I agree with Sean.
07:14I would also add, you know, we've had such a run-up in stocks in companies that have said we've
07:18got a grand AI strategy.
07:19I think we're moving from an era of AI ambition to AI accountability.
07:23And what does that mean?
07:24I mean, with all this AI spend, I think one of the questions activist investors may be having for companies
07:29is, what's the ROI?
07:30Because if you're an activist investor, you're looking at every single dollar that the company is investing and saying,
07:34is this dollar better invested in AI or is this dollar better done returned to shareholders?
07:39And I think that's the calculus that I think companies should be aware of when dealing with AI as an
07:44activist theme.
07:44So only a couple minutes here, but I'd love to just end with us all dusting off our crystal balls.
07:49So obviously, very active first half.
07:51Sean, what are you expecting for the second half of this year?
07:53I think probably one of the busiest activist seasons going forward.
07:59I think the AI trend will only continue.
08:01And again, I think the push is going to be activists, you know, saying, look, we can help you, company,
08:07communicate better.
08:08We're an AI winner, not an AI loser.
08:10And if not, we're going to go after the CEO, which is another trend we've seen, you know, really, really
08:15drive activism over the last few years.
08:17I mean, same thing, second half, more of the same of the first, just very active.
08:20I think it's really busy.
08:21I mean, when I talk to clients, I say, think about the activism on the landscape as an iceberg.
08:26You know, you may not see a huge amount of activity happening above the surface, but there's plenty of activity
08:30happening below the surface.
08:31And, you know, given all the backdrop, the structural backdrop, the AI trends that we're seeing, I think there's just
08:36going to be more opportunities for activists to approach companies.
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