As 2025 begins, Garancie Limited wants to emphasise the vital role of due diligence in mitigating concerns related to activist investors. A January 2025 report has highlighted the rise of activist investors, a trend which has been growing over the last decade. The ‘Activist Investing in Europe’ report, published by Skadden in collaboration with Activistmonitor, focuses on how in a turbulent political and economic climate, European listed companies must prioritise strategic foresight, transparency, and proactive shareholder engagement to maintain value and pre-empt activism. Italy and Germany are listed as key markets experiencing increased activism, reflecting a broader trend across Continental Europe.
The ‘Activist Investing in Europe’ report concluded that companies need greater flexibility, transparency, and engagement to anticipate and address activist demands, while upholding strong corporate governance. Proactive interaction with shareholders is essential, anticipating potential issues such as acquisitions, divestitures, and ESG (Environmental, Social, and Governance) concerns.
Due diligence enables companies to prepare for this nature of investment. Shareholder activism increases scrutiny, and activists may challenge deals they consider undervalue the target or misalign with shareholder interests, potentially leading to renegotiated terms or deal abandonment. Thorough due diligence is vital in preparing for mergers and acquisitions (M&A), enabling companies to be properly prepared and evaluate the risk involved. In addition, checks on regulatory records can identify waste or pollution violations, while searches on labour judgments and product safety enforcements can help a company mitigate risk, addressing ESG issues.
From an investor’s perspective, activist shareholders’ presence in M&A can introduce both prospects and uncertainties. Enhanced due diligence means insight is gained on the alignment of investing strategies, company culture and business ethics.
The interplay between shareholder activism and political factors, such as interest rate policies, is expected to be a key feature of 2025. As activist investor influence continues to grow, companies and investors must understand and adapt to the evolving dynamics of M&A transactions, and due diligence forms a vital part of this process.
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