Details

  • Type: KPMG information
  • Date: 10/19/2015

Activism investment as the key to unlocking value in regional firms 

An activist investor is an individual or group that purchases a significant portion of a company’s shares and tries to obtain seats on the company’s board with the goal of effecting or enabling a major transformation in the company. A company can become a target for activist investors if it is mismanaged, has excessive costs, can be run more profitably or has another problem that the activist investor believes can be fixed to make the company more valuable.

Fuelled by performance pressures and a growing expectation of low, inadequate and increasingly questionable returns from traditional investment avenues, investors are increasingly seeking higher returns and diversification by allocating a growing portion of their investment funds to less liquid but more promising alternatives through venture capital firms, private equity and hedge funds.

 

The challenge in assessing the attractiveness of asset classes targeted by such activist investors lies in the inadequacy of financial statements to capture all elements affecting their value since business models can be disrupted, inventories can grow obsolete and receivables uncollectible; liabilities are sometimes unrecorded and property values over or understated.

 

Growth companies on the other hand have multiple opportunities to expand their business models into other rapid-growth markets. However, most of the companies under this category have not been able to realise their full potential owing to inadequate capital, inconsistent performance, lack of properly established structures and lack of a clearly defined growth strategy that would-be investors find essential in assessing a company’s overall investment attractiveness...Read more