Actionable Ideas for Companies and Sponsors

Activist Activity Should Increase Due to Continued Uncertainty Around Brexit

Activist activity in the UK has increased significantly over the last five years as the number of activist campaigns in the UK has nearly tripled from 23 to 66. However, the impact of continuing uncertainty surrounding Brexit on the expected growth and margin profile of otherwise attractive UK companies is setting up UK corporates for a record level of shareholder activism. Brexit has resulted in a 25% decline in UK equity valuations over the last 24 months, as well as a significant decline in Sterling exchange rates. In addition, a potential change to a Labour Party government is leading to uncertainty around higher corporate income taxes. Furthermore, private equity and pension funds are significantly limiting their investments in UK corporates. Notwithstanding these factors, there are a large number of UK-domiciled corporates that are competitively strong and well-managed, but whose values have been significantly diminished by Brexit and politics. We believe this confluence of events will drive a significant increase in activist activity, and UK corporate clients should be thinking through strategies to help prevent as well as to address this outcome.