An activist investor is an individual or a group of investors who use their financial resources to influence the management and operations of a company. They typically purchase a significant stake in the company’s shares and then use their position to push for changes that they believe will improve the company’s financial performance and increase shareholder value.
Activist investors are also known as shareholder activists, and they are distinct from traditional investors who buy shares in a company with the intention of holding onto them for the long term. Activist investors, on the other hand, buy shares with the explicit goal of influencing the company’s management and strategy.
The strategies employed by activist investors can vary widely, but some common tactics include:
- Publicly criticizing the company’s management: Activist investors may publicly call out the company’s management for underperformance or poor decision-making in an effort to pressure them to make changes.
- Proposing changes to the company’s strategy: Activist investors may suggest changes to the company’s strategy, such as divesting non-core assets, cutting costs, or pursuing mergers and acquisitions.
- Attempting to gain seats on the board of directors: Activist investors may attempt to gain seats on the company’s board of directors in order to have more direct influence over the company’s operations.
- Engaging in proxy fights: If an activist investor is unable to convince the company’s management to make the changes they desire, they may launch a proxy fight to attempt to gain enough shareholder support to force changes.
While some activist investors have been accused of short-term thinking and a focus on maximizing profits at the expense of long-term value creation, others argue that they can be a force for positive change in the corporate world. By holding management accountable and pushing for more efficient and effective strategies, activist investors can help to unlock value for all shareholders and improve the overall health of the companies in which they invest in.
However, it is important to note that not all activist investors are created equal, and some may have ulterior motives or pursue strategies that are detrimental to the company in question. As with any investment strategy, it is important to carefully evaluate the actions and intentions of activist investors before deciding to invest alongside them.