With ongoing market volatility, high inflation, and suppressed stock prices, primary and partial-focus activist investors are returning to previous targets to address unfinished business. 13 campaigns targeting U.S.-listed companies were revisited by activists in the first quarter of this year, a 60% increase on the same period in 2022.

“Companies that you know well and are still not performing well, you will have the most credibility and knowledge about what to do,” said Ele Klein, co-chair of the global shareholder activism group at Schulte Roth & Zabel. Klein told Insightia that in such underperforming markets, the companies that are more challenged tend to come to the surface as their stock prices decline and are exposed against peers, giving a dissident a case for change that will likely resonate better with the investor base second time around.

Rematch

Board representation remains the chief objective for dissidents who are taking a second stab at introducing company reforms, with 76% of all comeback campaigns involving the demand in the period, according to Insightia’s Activism module.

Early this year, Stilwell Value returned to Mississippi-based Peoples Financial for the third consecutive year, again seeking one board seat for Rodney Blackwell, a principal at transportation equipment lessor Northwood Investment. Along with the recuring call for “new blood”, the 2023 campaign appears focused on Vice President for Corporate Affairs Tanner Swetman, son of CEO Chevis Swetan, whose decision-making is argued to have resulted in large securities losses.

Legion Partners has also opted for a rematch returning to Primo Water in March, three years after abandoning an activist campaign following the company’s decision to sell itself. In a heated battle, the activist has argued that the board “has been a landing spot for its ex-CEOs and a comfortable board role for long-tenured directors with little relevant experience or personal investment.” Pointing to its original investment in Primo before the company was sold to Cott Corp. in 2020, Chris Kiper’s fund told fellow shareholders that it believes the sale was made “at least in part to spare the previous board the looming proxy fight with Legion Partners, and that the sale price was at a significant discount to the company’s intrinsic value.” Legion was cleared to run its four-person slate in mid-April after Primo accepted its proposal of settlement having initially rejected the dissident’s entire four-person slate, citing deficiencies in their nomination documents.

Since 2016, Lawndale Capital Management has made a number of returns to U.S. air-powered tools manufacturer P&F Industries, the most recent of which took place in January this year with a demand to make improvements to its board composition, director equity compensation, and the company’s methods of returning capital to shareholders. The California-based activist hedge fund took aim at the company’s “pale, male, and stale” board and pushed for a younger, more diverse profile. In a 2021 campaign, the dissident had also called for a range of corporate governance improvements including that the board de-stagger director terms to a single year.

Familiar ground

While an underperformance metric is considered the common draw for activists whether they are initiating a campaign or making a comeback, industry experts believe the resulting familiarity from having already pursued a campaign in the past will often be the key driver behind a rerun.

“This is an investor that knew the space, knew the company, and also a fact pattern where you would have started a campaign and then withdrew it or settled by standing down due to steps taken or promised steps,” explained Klein. “That’s the type of campaign that I can see happening more easily. You can show investors you have a deeper understanding.”

Regulatory landscape

Changes to the regulatory landscape are also cited by industry sources as having provided the catalyst for many returning activists in 2023 such as the introduction of the universal proxy card (UPC) which was expected to make it easier and cheaper to run campaigns for board spots. UPC also triggered a surge in company bylaw amendments with some activists resurrecting campaigns in a bid to protect shareholder rights describing such changes as onerous and aggressive.

Legislation surrounding the exculpation of officers, which was recently amended to extend exculpation rights to executive officers, is also seen as a possible impetus for recircling activists. “Universal proxy made it less expensive for activists to do what they had wanted to do. This kind of regulatory environment has also made it easier to get the support they may not have had in previous years. There are also a lot more contests going after individual or specific directors also likely linked to the new exculpation of company officers in Delaware, which I think has put directors back in the spotlight,” Mila Brogan, vice president of Kingsdale Advisors told Insightia.

The growing influence of retail investors is also at play with client directed voting and the advent of improved voter technology. “BlackRock had rolled it out for institutional investors but now a lot are exploring whether they can do it for retail investors,” Brogan observed.

To avoid a rematch, Brogan told Insightia that boards need to keep their finger on the pulse of their shareholder base. “Shareholder engagement is a year-long process and companies should be actively doing so. With the advent of new apps, you can do sentiment tracking, you can take the pulse of your retail shareholder base to see what’s important to them. Proxy polling or polling on specific issues or campaigns is something that companies can and should be doing.”