Paul Singer speaks at the Delivering Alpha conference on September 13, 2016 in New York.
David A. Grogan | CNBC
for some Activists often acquire large stakes in companies with the ultimate goal of inducing a sale at a higher price, but it is only when there is an active buyer’s market that their campaign efforts are fully rewarded. Only if you do so. You can pressure management to cut costs or improve operations to get a return on your investment, but some kind of agreement is usually required.
An investment banker who advises tech companies told CNBC that his firm is warning clients about the changing environment. The banker, who requested anonymity because he was not authorized to discuss the matter, said his team has told the company that long-term activist shareholders are poised to begin demanding a breakup or sale., as a cost reduction Opportunities are reduced.
Technology, media and communications trade value reached $856 billion in 2021, the end of a more than decade-long bull market. That number will fall to $565 billion in 2022, according to PwC, and more than halved to $255 billion last year.
Rather than open their wallets to acquisitions, companies were admitting they had hired too aggressively during the coronavirus boom and announcing mass layoffs and other cost cuts. Rather than having their growth supported by capital markets, technology companies began to focus on operational efficiency.
Layoffs in the industry jumped by about 60% last year, with about 1,200 companies cutting more than 262,000 jobs, according to the website Layoffs.fyi.
“Most of these companies are cutting jobs because of behind-the-scenes pressure from activists,” Kai Leekefet, co-chair of Sidley Austin’s shareholder activities and defense practice, told CNBC. It’s for the sake of it.” “Activists believe that founder-led companies are rarely run efficiently. They believe that companies are run like fractal houses.”
As layoffs continue to make headlines, with January being the heaviest month for layoffs since March, some companies are showing a willingness to start spending big again.
Two megatech deals have been announced so far this month. Semiconductor design and software company Synopsys has agreed to acquire engineering and product design software company Ansys for approximately $35 billion. Hewlett Packard Enterprise also announced that it will acquire network equipment vendor Juniper Networks for approximately $14 billion. Juniper was targeted by activist hedge fund Elliott Management about a decade ago.
Also in January, diversified technology company Roper announced it would acquire software developer Procare Solutions for $1.75 billion.
CNBC previously reported that two different activists are pushing Twilio to sell itself or break up. Piper Sandler analysts in January named Adobe or Zoom as potential strategic buyers for Twilio, which has a market cap of more than $13 billion.
Salesforce was able to quell activist campaigns last year, largely due to quick cost-cutting measures.. In January 2023, shortly after Elliott was reported to be investing billions of dollars in Salesforce, the company cut 10% of its workforce and emphasized a renewed focus on profitability. According to the Wall Street Journal, Salesforce has cut an additional 700 jobs, about 1% of its workforce.
Activists have shown recently that they can push tech companies into the M&A market.
In October 2022, Starboard Value took a nearly 5% stake in Splunk public, calling the company a “very strategic” asset for the right acquirer and specifically noting Cisco’s interest in the company. Then less than a year later, Cisco announced he would acquire Splunk in his $28 billion deal. When news of Starboard’s involvement first surfaced, its market capitalization was approximately $11.4 billion.
Cisco Chairman and CEO Chuck Robbins and Splunk CEO Gary Steele appeared on CNBC’s Squawk on the Street.
CNBC
It’s not just new deals keeping activists busy.
In 2022, the SEC introduced the so-called universal proxy card. This puts all director candidates from both management and shareholders on one card rather than competing blank sheets.
The rules haven’t had much of an impact yet, but there are signs that could change. At Starbucks, for example, the Financial Times reported that the union’s Center for Strategic Organizations is fighting to secure board seats with a campaign focused on employee treatment.
One activist advisor, who requested anonymity to speak freely about confidential matters, said numerous proxy fights were “ongoing” and companies were reluctant to cede control of their boards without a fight. He said it is possible.
clock: Salesforce CEO talks about activist investors