A sharp value creation strategy not only ensures that a great business is a great stock—but it also helps deter activist attacks.
A linear approach to strategy—first defining a business strategy, then developing a supporting financial strategy, and finally selling that package to investors—may seem logical, but it’s often not optimal.
The approach falls short because of the many interdependencies among business, financial, and investor strategies. Only by developing all three iteratively and in parallel—exploring multiple scenarios—can an organization maximize its total shareholder return (TSR).
In our value creation strategy work for clients, we:
Shareholder activism is on the rise. From 2005 through 2019, the number of activist attacks globally grew from 54 to 191—a rate of more than 9% per year. And it’s not just subpar performers that are targeted. Nearly one-third of companies attacked from 2016 through October 2020 were delivering three-year total shareholder returns above the S&P Global 1200 median as of the month prior to the attack—and more than half of those also had a forward price-earnings ratio above the S&P Global 1200 median.
Defending against an activist attack is costly—and not just in dollar terms. Management time that could be spent building medium-term advantage is diverted to the short-term crisis. Asking one question can help build immunity to activists: how to create value that beats peers?
BCG is the only major consulting firm that has an explicit policy against working for shareholder activists. We only support our corporate clients in preparing for and responding to activist demands. Using our proven proprietary toolkit, we rapidly identify the ways to unlock value and the transformational moves that mitigate activism risk.
The rankings provide a valuable frame of reference by indicating which companies and industries entered the COVID-19 crisis with TSR momentum and which did not.
BCG’s latest research finds investors increasingly bearish on the economy and the stock market—and they want businesses to focus on both liquidity and long-term advantage.
While shareholder activism has slowed, this is likely to change—in a big way—as the global economy takes steps to right itself.
Whether your organization is seeking to ignite a new wave of value creation, justify a high multiple, guard against an activist attack, or overcome a new activist campaign, BCG has the relevant experience. For example, we helped:
A North American soft-goods manufacturer understand why its market returns were below par despite strong fundamentals. The revised business, financial, and investor strategies we developed increased their TSR, price-to-earnings ratio, and stock price by 30% when compared with the market and the company’s peers.
A global logistics player break a cycle of underperformance and adopt value-based management practices that led to a new performance trajectory with TSR 10% above the market.
A major enterprise tech player prepare for and inoculate against a potential activist attack by analyzing an array of potential portfolio moves, cost reductions, and financial policy choices. The work led to two scenarios forecast to boost valuation by as much as 100%. The strategy ultimately outperformed by warding off an attack and leading to a doubling of the company’s share price within two years.
A leading global biopharma company respond decisively to a hostile takeover attempt by a competitor and an activist. Rapidly exploring strategic options, we helped the company develop a plan in six weeks to reduce costs by more than 15%, creating roughly $30 billion in incremental value and enabling the company to attract a white-knight acquirer.
