| NEW YORK, April 11
NEW YORK, April 11 U.S. investment banks, many
of which have reduced headcount in the face of shrinking
profits, have found new opportunities in an unusual place, the
growth in shareholder activism.
Goldman Sachs Group Inc has long been the go-to firm
for companies defending against activists ever since the days
when they were called corporate raiders.
But over the past few years, big banks like Credit Suisse
and Barclays Plc as well as investment bank
Houlihan & Lokey, which focuses on the middle market, have
formed practices offering the services.
The banks help companies with everything from writing press
releases to analyzing the costs of a breakup or countering
activists' demands, bankers said. They are also aid companies in
identifying where they could be vulnerable, even before activist
investors show up on their doorsteps.
"The level of receptivity from companies has definitely
increased," said Daniel Kerstein, head of the strategic finance
group at Barclays. "In some cases the proposed medicine may be
worse than the problem, but you are still going to listen."
Companies are increasingly coming under fire from activists.
There were 241 activist campaigns in 2012 targeting a change in
company strategy or board, up from 187 in 2009, according to
Over the past three years, activist hedge funds have
outperformed more traditional hedge funds, according to
Chicago-based Hedge Fund Research (HFR). Its activist index has
returned 3.80 percent on an annualized basis, compared with its
global hedge fund index, up only 0.25 percent.
That has drawn the attention of investors. Assets under
management in activist funds doubled to more than $65 billion in
2012 from $32 billion in 2008, according to HFR.
Successful activist campaigns, and the pressure to
outperform index funds in a low-return environment, have made
pension and mutual funds more willing to join up with activist
investors, giving them more allies in their campaigns.
With the U.S. economy recovering, it is also easier to
discern which companies are underperforming, making them more
"The numbers are not going to retreat," said Chris Young,
head of contested situations at Credit Suisse. Once investors
see that activist campaigns are successful, "then that tool is
identified as one of the tools in their toolbox," he said.
For the investment banks, offering defense advice can help
solidify relationships at the most senior level, such as a board
of directors or top management, bankers said.
Barclays has grown its shareholder defense services over the
past few years as an outgrowth of its equity restructuring
business, which helps with non-distressed corporate breakups.
The team sits within the bank's mergers and acquisitions
practice, Kerstein said.
Credit Suisse hired Young, the former director of M&A and
proxy fight at influential proxy adviser Institutional
Shareholder Services, to head its takeover defense practice in
"As a firm we've been devoting more resources and more
headcount to this subject matter in an environment where banks
in general have been decreasing headcount," Young said,
declining to elaborate.
Houlihan & Lokey, which focuses on mid-sized corporations,
has expanded its business advising on activist defense over the
past couple of years, said Gregg Feinstein, managing director
and co-head of M&A. Unlike larger peers Goldman and Credit
Suisse, Houlihan works with both activist funds as well as
Being proactive is key, said Bill Anderson, head of the
defense practice at Goldman. For example, companies are
increasingly assessing potential vulnerabilities, even before
activists show up.
Communicating with other shareholders - not just the
activist investors - is also crucial, bankers said.
"Companies need to make sure they are talking to all of
their shareholders on a regular basis," Kerstein said. "You want
your shareholders to be brutally honest with you."