Morgan Stanley: Activist Success Rate Increasing

Apr 8 2015 | 5:00pm ET

The batting average for activist investors is going up.

A new Morgan Stanley report shows that activist investors success rate, defined as having activist demands either fully or partially met by the targeted company, rose to 73.8% in 2014, according to media reports. That’s up from 66.6% a year earlier and 67.8% in 2013.

Unsurprisingly, activist investing has risen in popularity in recent years, as companies often accede to some or all demands in an effort to avoid costly and protracted proxy battles over board seats, buybacks, dividend policies, strategic options and other means of unlocking shareholder value. 

The number of activist investments in 2014 reached 859, up 43% from 2014 and up 97% from 2013, according to the reports. This has corresponded with post-crisis economic growth that has been sufficient enough to develop large cash balances on the balance sheets of many mid- and large-cap companies. These cash hoards, as well as other operational inefficiencies, are often cited in activist agendas.

The data was contained in a research piece on publicly traded U.S. asset managers, according to the reports. Morgan noted that the uptick in activism could ultimately push companies to divest more assets, which would in turn create a favorable environment for publicly traded alternatives managers.

Given the success rate, activist activity is becoming somewhat of a self-fulfilling prophecy. Simply the news that a major activist shareholder like Bill Ackman or Nelson Pelz has accumulated a stake in a company can be enough to generate a pop in share price. 

A previous report on activist investing from Morgan Stanley, published in January, found over short time horizons, the market reaction to the announcement of an activist campaign are generally positive by 2–3%.

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