Activist investors have their sights set on public companies in 2022

There’s action from activist investors on the horizon for 2022, spurred by underperformance and a greater focus on governance. 

It was a record year for IPOs in 2021 and a boom in SPACs. But half of the IPOs began trading below their offering price in December. And January was a lousy month for U.S. stocks.

“And does that attract activists? Absolutely,” says Shane Goodwin, Ph.D., a professor of finance and associate dean of graduate programs at the Cox School of Business at Southern Methodist University (SMU). 

Hedge fund activists like Bill Ackman or Carl Icahn are going to be focused on companies that are “clearly underperforming” and “maybe there’s an opportunity within the industry for sale,” he says. In fact, any companies that are underperforming, “whether they were just newly [public], or whether they’ve been public for a very long time, are definitely going to be in the crosshairs,” he says.

Peloton Interactive Inc. went public in 2019. Blackwells Capital LLC has a stake of less than 5% but is preparing to push the company to fire CEO and co-founder John Foley, according to reports. Peloton’s shares have fallen more than 80% from the company’s all-time high a year ago. Activist investors are unhappy with Kohl’s CEO Michelle Gass’ strategy for the department store chain as they circle Kohl’s with takeover offers. Starboard Value is offering $9 billion to buy the retailer. 

But what we’re also seeing today is governance-related activism, Goodwin explains. For example, “The Big Three— BlackRock, State Street and Vanguard,” he says. Collectively, the firms have a significant ownership stake in S&P 500 companies. “They have a lot of voting clout,” Goodwin says. They’re really focused on board diversity as well as the environment, ensuring companies have a sustainability plan focused on the long term, he says.

A former investment banker, Goodwin has 25 years of strategic advisory, M&A, and corporate finance experience at firms including Goldman Sachs, Citigroup, and Wells Fargo Securities. I asked him to predict which companies should prepare for activist activity. He said he doesn’t publicly disclose that info but did share some insight. As the environment and sustainability remain in the spotlight, the utilities and energy sectors are ripe for activism, he says. “Companies will definitely need to be thinking about switching to being carbon neutral, sooner rather than later,” Goodwin says. And he predicts the airline industry will be in the spotlight as well.

“M&A had a record year [in 2021], and it will continue this year,” Goodwin says. “And that’s a good environment, generally, for activism.” In regard to the financial sector, there’s a lot going on the with consolidation of regional banks, he says. 

When it comes to gauging your company’s vulnerability to activist investors, “if you’re a good CEO, and a good CFO, that’s really your job,” Goodwin says. “If you’re thinking about all the governance-related issues for your board, how to run your business in a profitable way, and creating value, that’s your best inoculation to any activist or any bad conversation with your shareholders, in general.”

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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Big deal

Global advisory Willis Towers Watson's (Nasdaq: WTW) Reimagining Work and Rewards Survey found 83% of employers expect to have problems attracting employees in 2022. And 74% expect to have difficulty keeping workers this year, up from 51% in the first half of 2021. The survey also identified a growing focus in five key areas driving workplace changes over the past three years. About 78% of respondents noted an increased emphasis on diversity, equity and inclusion, followed by more flexibility for employees (74%). The findings are based on a global survey of 1,650 employers, including 241 from North America. Respondents employ 11.9 million employees, according to WTW.

Going deeper

New research by Gartner suggests CFOs take a nod from activist investors.
Finance chiefs who practice capital responsiveness can add 2.5 percentage points to economic value added, according to Gartner. “Being an activist CFO does not mean taking investment decisions out of business partners’ hands, but rather exerting influence on how investments are evaluated to ensure that enterprise-wide value creation is put first, rather than short-term or siloed objectives,” Emily Riley, director, research in the Gartner Finance practice, said in a statement.

Leaderboard

Jesus "Jay" Malave was named CFO at Lockheed Martin (NYSE: LMT), effective immediately. Malave most recently held the positions of SVP and CFO for L3Harris. Prior to that, he served as vice president and CFO of Carrier Corporation, an operating unit of United Technologies Corporation (UTC). During his more than 20 years at UTC, Malave also served as VP and CFO of UTC Aerospace Systems and head of Investor Relations.

Nicole LaBrosse was promoted to SVP and CFO at Halozyme Therapeutics, Inc. (Nasdaq: HALO), effective immediately. LaBrosse will succeed Elaine Sun, who is stepping down to pursue another opportunity. LaBrosse joined Halozyme in 2015. Most recently, she served as Halozyme's VP of finance and accounting since 2020. Previously, LaBrosse held the role of executive director, controller since 2017. Prior to joining Halozyme, she was with PricewaterhouseCoopers, LLP for over 10 years.

Overheard

"When we started, I knew some aspects of the business, but I didn't know beauty, I didn't know retail. And I gave myself a chance."

—Falguni Nayar, the first Indian woman to take a unicorn public, on creating Nykaa, a beauty and fashion e-commerce platform, as told to Fortune.