How activist investors have turned eyes toward Ireland

Shareholder activism is hitting new heights as investors see Irish and European companies as undervalued

Sat, 08 Mar, 2025 - 07:05

Emer Walsh

Despite a more turbulent beginning to 2025, US markets enjoyed record highs last year before the threat of punitive tariffs from President Donald Trump added to volatility. Wall Street enjoyed huge gains as the S&P 500 rose by more than 23% by the end of 2024.

Defying initial recession fears and geopolitical concerns, Wall Street’s second consecutive year of major gains was made possible by one key element.

Last year saw AI technology at the heart of the stock market’s historic rally. Institutional investors funnelled billions into AI-heavy funds, betting on the technology’s long-term impact on major industries from finance to healthcare.

Companies like chip maker Nvidia tripled in value, reflecting the market's enthusiasm for AI technologies which dominated headlines throughout 2024. Its success led to a hyper-fixation on tech stocks, with companies not on the AI train largely left on the sidelines.

“The public markets were so focused on AI, almost to the exclusion of anything else,” says Aidan Donnelly, head of global equities at Davy.

“This created a lot of opportunity. Companies, which were very good in their own right, were largely ignored or even discarded by the public equity market because they weren’t AI.” This exclusion of non-tech stocks made it easier for smaller investors to build positions in these companies, allowing minority shareholders to have a larger say in their operations and setting the stage for activist investors to push for corporate change.

“This also made the opportunity cost for an activist much lower, as they only needed 2-3% now compared to needing 5-6% before,” Mr Donnelly added.

It is therefore no surprise shareholder activism reached new heights in 2024. For the second year running, the total number of companies publicly targeted by activist investors globally surpassed 1,000 amid changing market conditions and a complex geopolitical landscape.

In the US market, shareholder activism reached a new record last year with almost 600 US-based companies facing demands, up 7% on 2023, with the number of CEOs leaving US companies after an activist encounter almost tripling in 2024.

That is according to a new report from governance, risk and compliance firm, Diligent which also recorded a significant shift across Europe.

As part of the shift, the report found that the number of Irish-based companies targeted by activist investors doubled in 2024, rising to eight in total.

Among them was Elliott Management, one of the world's largest activist funds, who last year engaged with Cork-headquartered industrial conglomerate Johnson Controls International.

Following the engagement, the company subsequently unveiled a succession plan for CEO George Oliver and the appointment of a new board member.

The report also noted moves from Engine Capital, an activist hedge fund which Diligent said launched public campaigns at six companies in the US, Canada and Ireland in 2024.

In August last year, the fund struck a deal with Bulmers maker C&C which saw the company appoint a new non-executive director to the board from an agreed shortlist.

The New York-based hedge fund, which has less than a 5% stake in C&C, had pushed the drinks group to explore a sale which it claimed could deliver a 58% premium to the company's share price.

However, following engagement with Engine and other shareholders, an agreement was reached that C&C said would see the two sides “work constructively together” in the interests of all parties.

Last year also saw Canadian activist Vision Capital embark on an aggressive campaign to shake up the State’s largest residential landlord, Ires Reit, pushing for the replacement of five company directors following what it called an underperformance of Ires shares.

Vision Capital’s campaign also highlighted the heavy price of engaging with an activist. Just last week, Ires Reit said in a trading update that it spent more than €2.5m in 2024 combating the activist shareholder.

Ireland was one of few jurisdictions in the region to see a rise in shareholder activism, with Germany and France both seeing significant falls in the same period.

Speaking on this uptick in Irish-based companies targeted by activists, Mr Donnelly says that it is not an Irish-specific phenomenon, but rather a reflection of the broader market.

“These activists target companies whose share prices have not done a whole lot. They’re looking for value, wherever that may be,” Mr Donnelly added.

“These activists are looking for companies that are undervalued, whether that is across the board or relative to its peers,” says Joshua Black, editor-in-chief of Diligent.

“They’re looking to fix that company and to influence its board of management. That is a lot easier to do in Ireland and the UK because controlling shareholders are less common compared to continental Europe,” Mr Black told the Irish Examiner.

While many activists saw desired changes in the Irish market last year, Mr Donnelly notes that successful activist campaigns remain rare.

“Some do make changes and have been very successful, but nowadays it seems like more of a halo effect. Once anybody hears an activist is involved in a company, investors usually rush to also come onboard, at least in the short term.

“In a sense, the work of the activist is already done as that rally pushes the share price higher.” However, Mr Donnelly notes that while few activists will see success, their rise overall can still bring benefits to Irish firms.

“If their actions highlight potential value in a stock, if you own that stock, you’re suddenly very happy because as a shareholder, your investment goes up in value. I don’t necessarily see a downside to it.” Echoing this sentiment, Mr Black notes: “It certainly encourages business leaders to revisit their approach. It may require more strategic reviews, calling in investment banks to understand how a company’s operations or portfolio can be optimised.

“In some cases, it can lead to more mergers and acquisitions, as well as a faster turnover among CEOs, which is something we have seen in particular in the US.” Looking forward, Mr Donnelly said that given the continued focus on AI, activist interest in non-tech stocks is likely to continue throughout 2025.

“When it comes to private equity and activist funds, a lot of money has been sidelined that needs to find a home.

“These funds tend to charge decent performance and management fees that need to be justified. I think this current trend is on track to continue.”