Of all the demands that activist hedge funds make, one has emerged as a clear favorite over the past year: asking the management of a company they target to put up the "for sale" sign.
Heady valuations have made the windfall from a sale too hard to resist for dissident shareholders, turning what used to be a fall-back option in past campaigns into preferred strategy, and prompting a slew of takeovers in the process.
The uptick in activist-driven deals has helped boost returns of the dissident investors. However, campaigns to spur company sales could put activists at odds with some large and powerful investors and undermine their recent efforts to project the image of long-term value creators rather than quick-buck artists.
U.S. activist campaigns that called for companies to explore some type of sale process totaled 91 so far this year, more than double the number a year ago, Thomson Reuters data show. The data excludes companies worth $300 million or less.
For activists, the demands are increasingly turning into deals.
The number of activist investments that ended with a company sale jumped from seven in 2010 to 25 four years later and 36 last year, according to research and data provider Activist Insight.
"Most small to mid-cap companies eventually get bought. That's the way the world works. There's nothing wrong with that. It's actually quite healthy," said Daniel Plants, the founder and chief investment officer of Voce Capital Management LLC, a $100 million activist hedge fund.
Voce's campaigns have contributed to the sale of several U.S. companies, including the acquisition of medical helicopter operator Air Methods Corp by private equity firm American Securities LLC for $2.5 billion, which closed in April.
More than 500 M&A-related campaign demands were made by activists globally during the 2016 and 2017 proxy seasons, representing around 75 percent of the total number of demands, according to JPMorgan.
Driving the trend are struggling mutual fund managers who support the deal campaigns to lock-in a positive return, and the decreasing number of targets where a quick fix can yield results, according to Goldman Sachs Group Inc..