Undervalued companies ‘face rising threat from activist investors’

UNDERVALUED British companies are at increasing risk from activist investors, a consultancy giant has warned.

Alvarez & Marsal (A&M) identified 54 listed businesses at risk of from activists over the next 18 months, up from 52 last year after valuations fell to a record low.

Companies in the consumer and energy sectors were most vulnerable, it said. Although A&M does not reveal the names of the companies, it said “consumer packaged goods” firms were most likely to attract attention.

A&M managing director Malcolm Mckenzie said: “Activists remain on the hunt for undervalued companies that are ripe for improvement.

“The UK market in particular has a significant valuation gap compared to its global peers, leaving more room for both M&A and activism in 2024.”

UK stocks are relatively cheap compared to their European counterparts, with the price-to-earnings ratios of listed British companies 17pc lower than the eurozone average last year.

Activists are investment funds that agitate for change at companies they own in the hope of boosting the share price.

The number of activist campaigns in the UK rose to 59 last year from 55 in 2022, with the consumer sector accounting for nearly half of campaigns. Betting giant Entain was one of the most high-profile campaigns, with top shareholder Eminence Capital pushing for change after criticising its share price performance. The gambling group recently agreed to appoint Eminence to its board.

Frankie and Benny’s owner The Restaurant Group (TRG) was also targeted last year, with four activist funds invested in the group.

Oasis Management, Irenic Capital, Coltrane Asset Management and Berry Street Capital were all shareholders in TRG.

TRG was sold in a £506m takeover last year to the Apollo group, reaping big gains for the activist funds involved. The UK is also the most rewarding hunting ground for activists, A&M figures show.

Companies who faced campaigns in the UK returned on average 9.2pc for shareholders versus 7.4pc in Germany and 6.1pc in the US.

The second half of last year saw an acceleration in the number of new campaigns launched across Europe.

From July 1 onward there were 74 new public campaigns by activists against European corporates, versus 39 in the same period in 2022.