Bigger and louder choirs create M&A dissonance

RB Global

29/03/2023 18:31

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Jonathan Guilford
       NEW YORK, March 29 (Reuters Breakingviews) - Little guys
are taking bigger stands. The just-completed $7 billion deal
between industrial-equipment hawker Ritchie Bros Auctioneers
 RBA.TO  and scrap-car marketplace IAA is a case in point. It
erupted into a fierce brawl with investors who don’t typically
pipe up in such situations. As more shareholders find their
voices, boards will revisit their defense tactics. 
    The Ritchie transaction was quite a saga, attracting public
expressions of assent or disapproval from no fewer than 10 major
shareholders. They included brand-name agitator Starboard Value,
but also funds that tend to keep a lower profile in
confrontational situations. IAA backer Discerene took its first
public stand. 
    Such rabble-rousing is on the rise. The share of activist
campaigns run by novices reached a record 36% in 2022, according
to investment bank Lazard. Veteran corporate cage-rattlers like
87-year-old Carl Icahn accounted for only 6%.
    A burgeoning diaspora of pushy investors accounts for some
of it. Starboard veteran Doug Snyder, for example, joined lead
Ritchie dissenter Luxor Capital in 2021. It also a reflects a
changing market. 
    So-called event-driven hedge funds were down 4.8% last year,
according to industry tracker HFR. Active managers may be
feeling pressure to speak up and show clients they’re grinding
for their fees. Depressed valuations also mean investors in
selling companies can increasingly push for more while wild
deal-related share swings – Ritchie’s fell 20% upon announcement
of the IAA transaction – present a chance to rally acquiring
company dissidents.
    Unfamiliar names keep popping up, but they’re struggling to
break through. Despite facing opposition, cybersecurity company
Magnet Forensics, tax software developer Avalara and IAA were
all sold. And boards are increasingly willing to hit back.
Ritchie and its allies painted Luxor as a “deceptive” interloper
in cahoots with short sellers. As M&A becomes more contentious,
boards may get more proactive by explaining their rationales
more robustly. Ritchie’s case for greater synergies came after
discontent grew. 
    Boards also can dangle the downside risk. Just look at
Zendesk’s $4 billion plan to buy survey company Momentive, which
was sunk by activists on both sides last year. Ultimately,
Zendesk itself was bought for 35% less than where it was valued
when it announced the Momentive deal. And Momentive was sold for
a mere $1.5 billion earlier this month. Sometimes it pays to
keep quiet. 
    Follow @JMAGuilford on Twitter
    
    CONTEXT NEWS
    Ritchie Bros Auctioneers said on March 20 that it had closed
its $7 billion acquisition of salvage marketplace IAA,
overcoming opposition from hedge funds including Luxor Capital,
Janus Henderson, Discerene and Deep Field Asset Management.

 (Editing by Jeffrey Goldfarb and Amanda Gomez)
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