JPMorgan Chase has launched a data analytics tool that aims to predict how investors agitating for change will influence other company shareholders, in the latest example of advisers using technology to help clients ward off activists.
A record $1.1tn of US corporate takeovers in the first half of the year has pushed activist investors to the top of board agendas. According to data from Lazard, company dealmaking has become the top target for these shareholders who want to influence company strategy and push through changes.
Advisers such as Lazard, Goldman Sachs and Evercore have long analysed client data to assess their vulnerability to activists, but JPMorgan believes its method, which was presented to 200 company directors at a recent event, offers more useful insights than can be gained from analysing factors such as how much cash a company holds or how activists have behaved previously.
“The stake an activist owns in the business is pretty small,” said Anu Aiyengar, JPMorgan’s head of North American mergers and acquisitions. “If all the focus of the company is on this very vocal and very loud shareholder . . . we think that is the wrong way to deal with it.”
“Instead we’re saying, let’s look at who are all of your shareholders, what can we learn about them and how they have acted in the context of these activists and how that will inform our strategy with respect to long term shareholders.”
JPMorgan has created a huge data set on previous activist situations at US-listed companies, and used that to build a profile of how various shareholders typically respond to individual activists.
The system can isolate which shareholders are likely to support a given activists’ approach, JPMorgan said, and which are likely to sell their stakes if a given activist joins a company’s share register. The data are then cross-referenced against a client’s shareholder base.
“This is all done with . . . available data,” said Huw Richards, a former bond market banker who is in charge of digital initiatives at JPMorgan’s investment banking division. The algorithm that connects different data sets is the project’s “secret sauce”, he added.
Ms Aiyenger said the JPMorgan analytical tool has already proved helpful in situations over the past few months.
Others in the industry, however, expressed scepticism about the project’s usefulness. “It’s an interesting question but it’s not where we’re headed,” said the head of activism at a competitor. “That’s sort of looking in the rear view mirror.”
He added that modelling shareholder behaviour is less useful because about 60 per cent of company investors are generally passive shareholders and “they don’t care”.
Bill Anderson, head of Evercore’s activism/raid defence business, said that although “statistical analyses on shareholder voting histories can be interesting, a company’s relationships with their shareholders are much more important”.
He added: “I am concerned that companies — perhaps encouraged by bankers — overfocus on data, rather than the blocking-and-tackling of shareholder engagement.”
Another Wall Street peer said his business had moved away from thinking of activists as distinct from other investors. “Every shareholder in our view is an activist,” he said. “Engagement and agitation is becoming more routine by shareholders across the board.”
Investor analytics services already in the market include Goldman’s Jupiter, which has been given to more than 100 of the bank’s clients since last year and allows them to check how they are performing against their key shareholders’ metrics and calculate a “vulnerability” to activists score. Jupiter also allows clients to analyse how shareholders could react to certain changes, such as in dividend policy.
Lazard and Evercore offer a variety of analytical tools that focus on vulnerability to activists that could stem from a company’s financial position and on changes such as broker dealers increasing their positions in a stock, which can be a sign of an activist covertly building a stake.
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