Press releases

Activist investors increasingly target Belgian companies

Investment in Belgian companies more than tripled from €112m between 2005 and 2017 to €395m in 2018

Brussels, Belgium – 14 May 2020

Activist investors, or shareholders who aim to maximise their own position through fully exercising their shareholder rights and driving significant changes within the company, are increasingly targeting Belgian firms. Deloitte’s 2019 ‘Be your own activist’ report illustrates current activist investor mindsets. As activism becomes more common, Belgium has appeared on the activists’ radar. Investment in Belgian companies more than tripled from €112m between 2005 and 2017 to €395m in 2018. Pressure on the Board of Directors mounts as activist investors aim to improve their own position.

Activist investors have been operating in Europe for some time, usually reserving their demands for countries with robust equity markets with sizeable large-cap segments and companies with a market capitalisation value of more than €10 billion. Today, activists around the globe, including more and more European activists, are diversifying their targeting strategy. There is an important increase in investment in mid-, small- and micro-cap companies (market capitalisation value of between €2 billion and $10 billion, €2 billion and €300 million, and less than €300 million) across many European markets compared to past focus on large-cap companies. Investors are committing more funds to activism in search of good returns, while new European regulations strengthening shareholder rights enable them to enter the market more easily.

Due to the nature of the Belgian equity market, Belgian listed companies were sheltered from activism, and the rise of activism and its consequences were not top of mind. However, as activism becomes more common, Belgium has appeared on the activists’ radar more frequently. Interestingly, all demands against Belgian companies were launched by activists from neighbouring countries, with 69 percent of total investment coming from activists from the Netherlands.

Lieve Creten, Deloitte Belgium Partner Financial Advisory: The recent upsurge in activist presence in Belgium confirms the European wide trend, favoured by the European Union adopting shareholder rights directives that encourage long-term shareholder participation. As their presence becomes more common and their strategies are more widespread, activists are now looking for targets beyond the traditional large-cap companies in large equity markets. Markets that used to be hidden from activists’ eyes, such as Belgium, are increasingly on the target list,” added Lieve Creten. “Proximity and a strong entrepreneurial culture are driving activists from the Netherlands to invest in Belgian companies. They see an opportunity to benefit from driving change in organisations across our country.”

BEL 20 index companies targeted

Activists are shifting their focus from large-caps to mid-, small- and micro-caps. The BEL 20 may have less large-caps than our neighbours, but its robust mid- and small-cap segment is attractive to activists.

We believe there are several reasons for this shift,” said Lieve Creten. More activist investors means that there is more competition and a need to find new companies to invest in which is driving interest in mid-, small- and micro-cap companies. Secondly, investing in smaller companies requires smaller capital outlay, which proves more attractive for investors who are looking to launch activist demands for the first time. Thirdly, by nature it is easier to increase the value of a €200m company than that of a €20b company, mitigating the high risk of return tied with large activist campaigns.”

As activism becomes more accepted, it is changing into a type of shareholder behaviour rather than a tactic waged by specialised funds. As a result, markets that were previously off the radar, like Belgium, are seeing a spike in shareholder activism.

The activist mindset

Activists look for undervalued or underperforming companies, both of which are abundant in both rising and falling markets. However, as the European economy slows down, activists will be able to enter companies on the cheap and hold a long-term position, making changes that benefit in the long run.

The demands activists launch depend on their plan for creating value in the target company, often combining multiple types of demands to reach their goal. Board related demands have been most common, not only in Belgium but also across Europe, as gaining a seat on the Board allows activists to have a greater influence on the company’s agenda. Mergers and acquisitions related demands, which aim to drive up target takeover price or alternatively oppose a planned transaction from taking place, are also common.

Investors expected to launch activist demands

A key consequence of the rise of activism is that the workings of the Board of Directors are in the spotlight. Every major business decision is subject to public scrutiny and can often involve public showdowns in the media. Such tactics can immediately put the Board in a position where they have to respond and put pressure on the management team. 

Active ownership firms, which allocate most of their assets to activist strategies, are expected to remain dominant players. However, more investors are expected to follow suit, launching activist demands occassionally, such as wanting a seat on the Board or influencing a merger, when they are unhappy with their position.

If you were to assess the business from the outside looking in, what should “good” look like? Ideally, the management of the target company should implement changes proactively to avoid any contest or loss of control. Leadership should use this unconstrained approach to challenge their thinking,” concluded Lieve Creten.

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