Introduction
Shareholder activism in Europe has evolved from a fringe curiosity into a repeatable, value-creating strategy that long-term investors can no longer afford to ignore. Unlike the stereotype of aggressive Wall Street raiders, today’s European activists often resemble stewards restoring a historic building: “You don’t redevelop Rome with a wrecking ball.” In practice, European activism is more like architectural restoration – working within complex corporate structures, not bulldozing over them, to unlock value. This constructive approach aligns well with family capital’s values of stewardship, patience, and governance improvement.
Several structural shifts make the European market ripe for activist engagement. For one, European equities continue to trade at a significant valuation discount to U.S. peers – on the order of 30–40% by various measures. This valuation gap, partly a hangover from years of underperformance, means there is abundant “low-hanging fruit” – fundamentally solid companies whose stock prices languish due to strategic drift or governance issues. In addition, regulatory changes like MiFID II have inadvertently created informational inefficiencies. As research coverage for small and mid-cap stocks thinned out post-2018, mispricings have grown more common. Activist investors are capitalizing on these gaps: one European activist investment manager notes*“we look at good businesses going through a challenging period… a profit warning causes a massive overreaction… [but] good news takes more time to show in the share price because there is a general lack of confidence”*. In other words, less analyst scrutiny means more chances for activists to find hidden value – exactly the kind of long-term, contrarian opportunity that patient family capital appreciates.
There is also a cultural shift underway. Board-level engagement by investors, once viewed with suspicion in Europe, is gradually becoming accepted and even welcomed. European boards and management teams, especially in traditionally conservative markets like Germany or Switzerland, have seen that working constructively with activists can yield positive outcomes. For example, in Switzerland an uptick in campaigns (from 5 in 2018 to 10 in 2019) reflected not only a liberal market structure but also a “more respectful attitude towards activist investors” on the part of corporate boards. Companies now prefer a “behind-closed-doors” dialogue with constructive activists rather than public showdowns, leading to a rise in private settlements. In fact, as one engagement advisor observed, up to 90% of activist engagements in Europe happen out of the public eye – “below the waterline” – like an iceberg whose tip is only the formal campaign announcement. Activism in Europe today is often a quiet collaboration to enhance a company’s trajectory, not a noisy proxy war.
European activist investing can align closely with the ethos of long-term allocators, who have longer time horizons and a desire for operational value creation over financial engineering – exactly the focus of constructive activists. Many European activists eschew high leverage and hostile tactics in favor of sustained engagement and governance improvements. For instance, one of Europe’s largest activist investment manager explicitly “does not…write open letters or engage in proxy fights, and believes in long-term investments”, focusing on Nordics, Germany, UK, and Switzerland where clear governance rules enable patient engagement. This philosophy dovetails with family offices’ preference to see their investments grow steadily and responsibly.
Why DACH and Nordic Markets Are Structurally Supportive
Zooming in on Europe, the German/Austrian/Swiss (DACH) region and the Nordics (Sweden, Denmark, Norway, Finland) present especially fertile ground for “constructive” shareholder activism. These regions combine shareholder-friendly legal frameworks, unique governance structures, and market inefficiencies that an astute activist can leverage in a collaborative way.
Legal Foundations – Minority Power and Shareholder Rights:
Europe’s continental legal regimes differ from Anglo-American law, but they offer powerful tools for engaged investors. In many countries, relatively small stakes confer significant rights. For example, in Germany a shareholder with 5% ownership can call an extraordinary general meeting or put items on the AGM agenda – a low threshold that empowers activists to press for change. Even a 1% stake allows a shareholder to request appointment of a special auditor or launch litigation in some cases. Perhaps most importantly, German corporate law effectively prohibits poison pills and other unilateral takeover defenses. The traditional U.S. shareholder rights plan (“poison pill”) is “not available under prevailing German principles of preemptive rights and non-discrimination”, meaning boards cannot easily dilute or block an unwanted investor without shareholder consent. This ensures that if an activist builds a stake and makes proposals, management must confront them on the merits rather than hide behind structural defenses. Similarly, Swiss and Austrian rules tend to favor shareholder votes over board fiat, and many European markets mandate a takeover bid at a 30% stake – preventing entrenchment by raising the costs for activists only modestly.
The Nordic model is even more intriguing. In Sweden and its neighbors, corporate governance codes create a system of shareholder-driven nomination committees for board elections. Companies listed in Stockholm, for instance, are required (on a comply-or-explain basis) to establish a nomination committee primarily composed of major shareholders. This means activists don’t need to wage costly proxy fights to gain board representation – if they accumulate a sizable holding (often well below 10%), they can secure a seat on the nomination committee and have a direct hand in selecting new board members. It’s activism through “inside voice” rather than megaphone. The Swedish Companies Act also offers robust minority protections, such as allowing 10% shareholders to call an EGM and even petition for the appointment of an independent examiner or auditor to investigate company affairs. These mechanisms give activists credible leverage without resorting to public brawls. The overall Scandinavian governance ethos expects active ownership; as one guide notes, “the Swedish corporate governance model is characterized by active ownership, including participation in nomination committee work as well as engagement in other governance matters”, especially by institutional investors and controlling families. In short, the Nordics embed shareholder engagement into the corporate framework – a boon for activists with a constructive agenda.
Governance Structures – Two-Tier Boards and Collaborative Mechanisms:
In the DACH region, companies often have a two-tier board system (a Management Board and a Supervisory Board) with employee co-determination. At first glance, this might seem like a hurdle for activists – after all, labor representatives may hold half the supervisory board seats in large German firms, and the separation of boards can distance shareholders from day-to-day management. However, the two-tier structure also means shareholder representation on boards is the norm. Large investors routinely occupy supervisory board seats, and activists can seek to join that roster by convincing fellow shareholders. Germany’s corporate landscape has historically been clubby and consensus-driven (sometimes described as “a more complicated role for shareholders” where labor unions and other stakeholders have formal voices). But activists have proven they can navigate this landscape. The key is to work within the governance layers: engage supervisory board members, respect the need for worker buy-in, and propose value-enhancing strategies rather than pure financial engineering. When done right, the two-tier setup can actually help an activist’s cause – since the Supervisory Board (where an activist may sit) can directly pressure or replace Management Board members if performance lags. In Austria and much of continental Europe, boards are similarly structured or at least inclined to include major shareholders. Activists with operational expertise or credible nominees can find receptive audiences among other investors who vote on board composition. Importantly, shareholder coalitions matter: because activists in Europe often hold only ~5-15% stakes, they must rally support from pension funds, mutual funds, and even founding-family shareholders. This dynamic encourages a collaborative rather than confrontational tone.
In the Nordics and the Netherlands (which uses a structured board system), activists benefit from flexible governance arrangements. Sweden’s one-tier boards with external nomination committees have already been mentioned; additionally, many Nordic companies have A/B share classes or other voting power quirks that activists can exploit or negotiate around. For example, an activist may partner with a controlling family (which holds super-voting Class A shares) to push through reforms that unlock value for all shareholders – a tactic seen in some Finnish and Swedish campaigns. Even where dual-class stock exists, public investors often still have say through governance codes and minority protections. The presence of state or family blockholders, common in these regions, means activists must position themselves as value-added partners rather than adversaries. Constructive activists have done exactly that – in Finland, for instance, activist funds worked alongside founding owners to find buyers for underperforming assets (as was the case in the sale of Sanitec to Geberit, where activists quietly supported the strategic deal). The bottom line is that DACH and Nordic markets, while culturally less combative, offer clear avenues for engagement: low thresholds to call meetings or propose agenda items, legal rights to nominate directors, and generally no poison pills or staggered boards to impede change. These features create a structurally supportive arena for constructive activism – the kind that prefers boardroom dialogue and negotiated outcomes over public battles.
Structural Inefficiencies – Under-researched Stocks and Passive Flows:
Another reason these regions are attractive is the prevalence of underfollowed mid-cap companies and the rise of passive investing. Germany, Switzerland, and Scandinavia all have vibrant Mittelstand and mid-cap segments that historically enjoyed ample sell-side coverage, but not anymore. MiFID II’s research unbundling hit European brokerages hard, and many cut coverage of smaller names. Contrary to some initial analyses, the quality and depth of coverage for mid-caps have indeed suffered – regulators like France’s AMF noted “a fall in research budgets has seen a reduction in coverage of small and mid-cap companies”. Activists feast on this lack of attention. They can accumulate positions quietly while a stock is below radar, then catalyze value by bringing strategic issues to light. In Sweden and Finland, meanwhile, a wave of index fund inflows means a larger portion of the shareholder register is economically invested but organizationally passive. Index and ETF holders typically vote with management or follow proxy advisors, which in practice means they won’t initiate change but might support a well-articulated activist plan. The implementation of the Shareholder Rights Directive II (SRD II) across Europe is nudging even passive managers to be somewhat more active – they must disclose their voting records and engagement policies, pushing them to at least consider activist proposals on ESG or governance merits. In fact, large passive institutions have started to back activist campaigns when aligned on long-term issues.
Restoration over Wrecking Ball:
In DACH and Nordic markets, experience shows that a patient, restoration-minded approach works best. Hostile tender offers or proxy fights are rare and often counter-productive in these consensus-driven cultures. But activists who come with operational credibility and a long-term mindset can achieve remarkable results. A case in point: Sweden’s ÅF Pöyry (an engineering consulting firm) saw quiet activist involvement by Zeres Capital (now, a part of EQT), which joined the shareholder nomination committee and helped install industry-expert directors. The result was a sharpened strategy and improved investor communication, contributing to a strong post-engagement stock performance – all achieved without a single press release from the activist. In Germany, consider the example of Stada Arzneimittel: Activist fund Active Ownership Capital accumulated ~7% in 2016 and pushed for supervisory board changes. After a dramatic 14-hour AGM where the chairman was ousted, the company ultimately agreed to a buyout at a ~49% premium to the pre-campaign price. That outcome (a successful sale) rewarded all shareholders and vindicated the activist’s thesis that Stada was undervalued, but it was accomplished through board engagement and formal shareholder votes – the legitimate, within-the-system methods that Europe’s framework provides. These examples underscore that constructive activism – working with existing governance mechanisms and stakeholders – is not only possible in DACH/Nordic markets, but often the most effective path.
Activism Styles That Work in Europe
One size does not fit all in shareholder activism. Over the past decade, a taxonomy of activist styles has emerged, each with its own tactics and suited regions. Understanding which styles work best in Europe (and specifically in different European sub-markets) is key for investors considering this strategy. Broadly, we can classify activist approaches into a few categories:
What Works in Europe: By and large, European campaigns that succeed tend to emphasize private engagement over public spectacle, and governance or operational reforms over purely financial engineering. Activists often test the waters quietly – reaching out to management, other shareholders, and even regulators behind closed doors – before making any public demands. The “iceberg” statistic mentioned earlier (up to 90% of engagement is invisible publicly) reflects this preference. Even ostensibly aggressive funds adjust their style in Europe: for example, Elliott Management, known for high-profile battles in the U.S., has in Europe often first tried to work through board channels or with co-investors (though it will turn up the heat if rebuffed, as seen in its campaigns at Telecom Italia and Hyundai).
One clear lesson is that multi-faceted campaigns yield the best results. Academic research by Becht et al. found that when an activist achieves multiple outcomes – say, board changes and a subsequent sale of the company – the payoffs are dramatically higher than if only one objective is met. Specifically, engagements with multiple outcomes including a takeover generated ~18% abnormal returns, roughly double the ~9.7% return of takeover-only engagements. The implication: activism in Europe works best when it’s holistic – targeting both governance and strategic issues – rather than a one-note agenda. European activists frequently pursue “campaign bundles”: they might push for board refreshment, a new CEO, and a strategic review (including potential M&A) all at once.
Europe also shows that cooperation beats confrontation in many cases. Activists who can work with incumbent stakeholders – be it a founding family, the government (for partially state-owned firms), or employee representatives – tend to unlock more value long-term, because the changes are more durable. For instance, when Elliott and Amber targeted Italy’s Ansaldo STS, they didn’t just agitate in the press; Elliott utilized Italy’s proxy access rules to get three independent directors elected and together the activists pressured the bidder (Hitachi) to raise its takeover offer, benefiting all investors. They achieved their goal (a higher price) by formally inserting themselves into governance (board seats) rather than remaining external hecklers. Likewise, Petrus Advisers in Austria often works quietly with bank regulators and other shareholders to effect change at financial institutions, recognizing that an outright public fight would be counterproductive in that environment.
An area where European activism is distinct is ESG-driven campaigns. European investors and regulators are especially attentive to environmental and social issues. Activists have smartly leveraged this. A notable case was Bluebell Capital’s campaign at Solvay (a Belgian chemicals firm) where Bluebell, though a small shareholder, publicly exposed the company’s pollution issues and demanded the CEO’s removal for failing to fix it. This “ESG activism” struck a chord – Solvay ultimately agreed to address the environmental problem, and Bluebell demonstrated that highlighting ESG concerns can rally support from normally passive stakeholders (like sustainability-focused institutions or the media) to pressure a company. Bluebell has similarly pushed for climate strategy changes at Glencore and even challenged BlackRock on ESG grounds. While not every European activist is an ESG specialist, almost all have learned to frame their value thesis in terms of long-term sustainability and good governance (since pure short-termism is met with skepticism). In fact, campaigns purely about financial engineering (e.g. demanding a quick leverage recapitalization or special dividend) have had mixed success in Europe unless there’s a governance angle too.
Finally, tone and reputation matter in Europe’s activist scene. The most successful activists often have seasoned local teams and a reputation for constructive engagement. This reputational capital gives management teams confidence that engaging with Cevian or similar funds can be a win-win, rather than a fight to be avoided. On the flip side, activists seen as too brash or short-termist can face a united front of resistance from European boards. In summary, the styles that work best by region tend toward the constructive and hybrid end of the spectrum in continental Europe, whereas the UK and some Anglo-influenced markets (like Ireland or even France to a degree) can accommodate the more aggressive style. But even in the UK – home to very public fights historically – recent successes (e.g. Nelson Peltz at Unilever) have come through negotiation and board involvement rather than hostile proxy wars. Europe rewards the activist who can be an architect and a diplomat, not just a demolition expert.
US vs. Europe – Comparative Activist Frameworks
It’s often said that “activism traveled from the U.S. to Europe.” Indeed, many tactics and funds originated in America, but the playbook has adapted to Europe’s different corporate governance terrain. Comparing the U.S. and European activist environments highlights key differences in board structures, legal tools, cultural acceptance, and success rates.
Board Structure & Governance: The U.S. predominantly uses a unitary (one-tier) board system, where a single board of directors (often including the CEO as Chair) governs the company. Shareholders in the U.S. typically elect all directors at once (or on staggered terms in some cases) and can replace the board through a majority vote in a proxy contest. In contrast, continental Europe skews towards two-tier boards (as in Germany, Austria, the Netherlands) or at least formal separation of supervisory and management roles. Germany’s two-tier system, for example, means an activist must target the Supervisory Board (Aufsichtsrat) to effect change at the top – and half of that board may be employee representatives in large firms, which is a unique constraint. However, shareholders in such systems still wield power: they elect the shareholder representatives on the Supervisory Board and can typically remove them with a majority vote at the AGM. This can make activism a slower, more deliberate process (involving annual meeting cycles) compared to the faster pace of U.S. proxy fights. On the flip side, the absence of combined CEO/Chair roles in Europe can make it easier for activists to argue for leadership change – it’s not as radical to suggest replacing a CEO when that person isn’t also the board chair, whereas in the U.S. activists often push for splitting those roles.
Another notable difference: UK and Nordic boards are one-tier but have their own wrinkles. The UK follows a unitary board model but historically had more prevalence of staggered boards and greater deference to management (though that has waned). Still, UK activists like Sherborne have used the familiar proxy contest mechanism akin to the U.S., benefitting from the UK’s well-defined corporate law and institutional investor voting practices. In the Nordics, one-tier boards are common, but as discussed, the shareholder influence via nomination committees changes the dynamics – an activist can secure representation or changes without a U.S.-style proxy fight.
Legal & Disclosure Tools: U.S. activists rely on a well-trodden legal toolkit. Key among them is the Schedule 13D filing – any investor who crosses 5% ownership in a U.S. company with the intent to influence control must file a 13D within 10 days, publicly declaring their stake and intentions. This often serves as the “announcement” of an activist campaign in the U.S. (and typically causes an immediate stock price jump if the activist is well-regarded). Europe has analogous disclosure rules but with variations: in the UK, the threshold is lower at 3% (and every percentage point change thereafter) for listed companies, and most European countries require disclosure around 3% or 5%. However, these disclosures (under EU Transparency directives implemented nationally) don’t force the investor to declare activist intent – it’s purely about ownership level. Activists in Europe can sometimes build stakes more stealthily using cash-settled derivatives or stakebuilding just under disclosure thresholds (as was common in the past in France and Germany) – though regulators have tightened some of those loopholes.
Proxy fight mechanics also differ. In the U.S., launching a proxy contest to elect new directors or pass resolutions is relatively straightforward (if costly): activists solicit proxies from all shareholders, often file preliminary proxy materials with the SEC, and generally a simple majority of votes cast decides the matter. In Europe, calling an Extraordinary General Meeting (EGM) to change directors or bylaws is possible (typically a 5% ownership threshold in many countries, sometimes 10%). For example, in Sweden a 10% holder can call an EGM; in Germany, as low as 5% can demand an EGM agenda item. This means activists don’t necessarily have to wait for the annual meeting, although in practice many do time their campaigns for AGM season. Voting rules vary too – some European countries have supermajority requirements for certain decisions (for instance, amending bylaws might need two-thirds vote). Removal of directors in some jurisdictions may require more than 50%, although most countries allow simple majority for election. The lack of universal proxy (until recently in the U.S.) and different share blocking rules in Europe also affect campaigns. In many European markets until a few years ago, shareholders had to “block” (freeze) their shares days before a meeting to vote, which could dissuade hedge funds from voting. The Shareholder Rights Directive has improved this, making voting easier cross-border.
Crucially, takeover defenses are much weaker in Europe. In the U.S., even today ~27% of companies have classified (staggered) boards and some still maintain poison pills. In Europe, staggered boards are rare (most markets require annual elections or have comply-or-explain codes favoring annual elections). And as noted earlier, poison pills are virtually non-existent across continental Europe. This means an activist threat of a takeover or pushing the company into play is more credible – management cannot unilaterally dilute the activist or block an acquisition attempt without shareholder approval. In the case of Italy’s Parmalat (2016), activists used their legal right to call a shareholder vote and replace board members via a slate, something that would be much harder if a poison pill or staggered board were in place. In short, the European legal environment, while varied, often gives more direct power to shareholders in general meetings even if the process is formal. As a plus, many countries (France, Italy, etc.) now allow proxy voting and electronic voting more easily than before, making it simpler for activists to coordinate international shareholders.
Cultural Climate & Tactics: The cultural acceptance of activism differs markedly. In the U.S., an aggressive activist (Carl Icahn launching a X tirade, or Bill Ackman live-streaming criticisms of management) is part of the corporate drama – not always welcomed by CEOs, but certainly an accepted element of the market. Media and analysts often immediately ask “what does the activist want?” and there’s a sense that challenging management is normal. In Europe, activism until recently was often viewed with suspicion or outright hostility by corporate elites. Terms like “locusts” were used by German politicians in the 2000s to describe Anglo-American investors. This is changing – but slowly and in a nuanced way. European activism tends to be more polite and behind closed doors, reflecting a culture of consensus. Activists in Europe frequently release polite but firm open letters, rather than the fiery broadside one might see in the U.S. There is also a tendency to emphasize being “long-term shareholders” who are aligned with stakeholders, to counter the old narrative of activists as short-term profiteers.
That said, when needed, European activists have shown they can get combative. We’ve seen proxy fights in France (e.g. CIAM versus Lagardère in 2020), bear hug bids in the UK (Elliott pressuring Whitbread to spin off Costa Coffee, for instance), and highly public campaigns in Italy (Amber vs. Telecom Italia’s governance). But these often come after initial private approaches fail. One specific cultural factor: family or state influence. Many European firms have a founding family or government as a key shareholder (think of Danone (France) with its heritage, or many Italian companies with family control, or Volkswagen with the Porsche/Piëch family and state of Lower Saxony). An activist must tailor their approach accordingly. In such cases, success often means convincing the reference shareholder that the activist’s ideas will increase long-term value (and are not intended to wrest control). In the Bayer 2023 situation, multiple activists (inclusive Capital, Bluebell, etc.) agitated for change, but they did so by also appealing to the broader shareholder base and the supervisory board’s sense of duty. Bayer’s board did bring in a new CEO and cut the dividend (activist suggestions) yet did not break up the company (activist demand they resisted). The outcome was a negotiated middle ground, emblematic of Europe: activists got some of what they wanted via dialogue, not total war, and the company moved in a direction signalling openness to shareholders’ concerns.
Outcomes & Success Rates:
Empirical evidence shows both similarities and differences in activist impact across the Atlantic. On announcement of an activist’s stake, stock reactions are positive in both the U.S. and Europe, reflecting investors’ belief that activism creates value. Studies by Brav et al. (2008) found ~7% abnormal returns around U.S. 13D filings. In Europe, initial disclosures of activist stakes see slightly lower immediate bumps – one study found 4.8% announcement returns in Europe vs ~7% in U.S. – perhaps because European activists often start with friendlier approaches that take time to clarify, or because some European stakes are disclosed without a big public campaign initially. However, when looking at outcomes (i.e. when an activist achieves a concrete success like a board seat, dividend change, or sale), Europe’s returns can actually be higher. A landmark international study covering 23 countries found that the stock jump on outcome announcements averaged 6.4% globally, but a striking 8.8% in Europe, compared to 6.0% in North America. In other words, when European activism works, it really works – possibly because successful European campaigns often involve large transformative changes (like a breakup or sale in markets that historically resisted such moves). This aligns with observations that many European firms have more “fat to trim” or conglomerate discounts to close, so a successful activist can unlock more value in percentage terms.
As for success rates (frequency of achieving objectives), data from 2000–2010 showed activists achieved at least one of their goals about 61% of the time in North America vs ~50% in Europe. That gap has likely narrowed in recent years as European activism gained sophistication and backing. But it underscores a reality: Europe can be tougher terrain to force outcomes, partly due to structural and cultural frictions we discussed. The lower success percentage in Europe also reflects that a significant minority of European campaigns end in stalemates or “no outcome” – often because the activist couldn’t overcome a controlling shareholder or was bought out quietly. Yet, it’s noteworthy that once an outcome is achieved, European shareholders might enjoy a larger payday (the 8.8% vs 6.0% stat). Additionally, holding period returns (from entry to exit) have been positive for activist funds in Europe. Becht et al. documented that activism with successful outcomes yields about 8.0% annual abnormal return (alpha), whereas activism with no outcomes can result in flat or negative returns. This again highlights the importance of achieving concrete changes – activism is a high alpha strategy conditional on success. It also implies that thorough due diligence on which campaigns and managers are likely to succeed is critical for investors (more on that in Section 7).
Investor Base & Support: A nuanced difference is the role of other shareholders. In the U.S., activists often appeal to event-driven hedge funds and arbitrageurs to accumulate shares and vote in favor of their plans (the so-called “wolf pack”). This happens in Europe too – activists frequently see other hedge funds piggyback on their campaigns. However, European institutions (pension funds, insurers, sovereign wealth funds) historically voted with management more and were less likely to join a wolf pack. That too is shifting. Foreign institutional investors, especially U.S. and UK asset managers, have become more willing to vote against European management when activists make a compelling case. In fact, U.S. activists often bring along their U.S. shareholder allies into European targets. A recent trend shows U.S. funds launching 35% of new campaigns in Europe in 2024, up from 27% a year before, and these funds often rally support from global institutional investors who hold European equities. Thus, Europe is witnessing a bit of “Americanization” in its shareholder base – with more assertive voting. Still, domestic European investors can be kingmakers. For example, in a French campaign at Accor, it was the stance of French institutional investors that tipped the balance on accepting activist board nominees. Similarly, in Germany, getting the support (or at least neutrality) of large foundations or family investors (think of Merck family in Merck KGaA or the Quandts in BMW) can be decisive.
In summary, the U.S. activist framework is more streamlined and battle-ready, with clear rules for fights and a culture that tolerates corporate conflict. Europe’s framework is more fragmented and consensus-oriented, requiring activists to be adept at both the technical legal maneuvers and the softer persuasive game. European activists might envy the ease of a Delaware proxy fight, while U.S. activists might envy the fact that European companies can’t easily deploy poison pills against them. But both environments have proven that activism, when executed well, can overcome structural barriers. As one transatlantic activist put it: “The tools differ, but the playbook – identify value, build support, effect change – is universal.” Investors just need to calibrate their approach to the field they’re playing in.
Valuation Opportunity & Market Setup
From a top-down perspective, Europe today offers a compelling valuation story for activist investors. Structural valuation discounts, combined with market trends post-MiFID II and the rise of passive investing, have created an environment where activism can generate outsized rewards by closing the gap between price and intrinsic value of European companies.
The Valuation Discount: European equities have traded at a persistent discount to U.S. equities for well over a decade, and that discount remains wide. As of mid-2025, European stocks on aggregate trade at roughly a 35% P/E discount to U.S. stocks. Another estimate by a major asset manager put European equities at a 40% discount on a cyclically-adjusted basis – a record gap. This is not fully explained by sector mix or earnings differences; it partly reflects investor preferences and perhaps outdated perceptions of Europe as having lower growth and weaker governance. Activists see this as low-hanging fruit: if you can identify a European company that is fundamentally sound but undervalued relative to global peers or its sum-of-parts, a campaign can catalyze a re-rating. For example, several conglomerates and holding companies in Europe trade at steep NAV discounts. Activists have targeted such cases (like Investor AB in Sweden or Exor in Italy, in some instances) by pushing for asset spins or improved capital return policies. Moreover, after years of U.S. market outperformance, capital is slowly rotating – U.S. investors are warming up to Europe in 2025, meaning there’s fresh attention that activism can harness. The upside potential from unlocking value in Europe can be substantial: it’s not uncommon to find mid-cap stocks that activists claim are 50-100% undervalued due to conglomerate structures or under-managed assets.
MiFID II and the Research Vacuum: As discussed, MiFID II’s unbundling (effective 2018) led many brokerages to cut back on covering smaller companies. While some data shows mixed effects, a consensus among market participants (and regulators like the AMF) is that small and mid-cap research coverage did decline where it was needed most. A 2020 Activist monitor piece noted that this is a “double-edged sword” – less coverage means more mispricing, but also that “good news takes longer to be reflected in the share price” for small caps. For activists, this can be positive: they can accumulate a stake at low prices in a company that has few analyst followers and then act as the catalyst to create the good news (be it a strategic shift or improved governance). The lag in price reaction that MiFID II caused essentially gives activists a longer runway to build positions before the market catches up. Activist funds themselves have sometimes hired independent analysts or industry experts to do the deep research that sell-side analysts no longer provide on these companies. In effect, activists fill the research gap – and in doing so, they earn the rewards when the value is eventually recognized.
We can observe the market effect in numbers: the number of public activist campaigns in Europe dipped after 2019. In 2024, only 105 Europe-based companies faced public activist demands, down 22% from 179 in 2021, marking a multi-year low. This dip might suggest to a casual observer that activism was waning – but the reality is nuanced. A lot of activism shifted to private engagement (hence fewer public campaigns), and the macro uncertainty of 2020-2022 (COVID, war, etc.) delayed some activist moves. The takeaway: there is a pent-up supply of activism targeting Europe’s value opportunities. Activists essentially sat out the worst of the pandemic and are now returning to capitalize on the still-low valuations. Long-term investors should view this as a secular opportunity – Europe’s discount is not permanent if catalysts (like activists or economic shifts) close the gap. Engaging with or investing alongside activists at the start of that upswing can capture significant upside.
Number of Companies Publicly Subjected to Activist Demands
Rise of Passive Flows and Shareholder Gaps:
Europe has seen a dramatic increase in passive ownership (ETFs, index funds) in its markets. While this is a global trend, it has particular significance in Europe where historically banks or strategic holders dominated many share registers. Now, with passive funds owning sizable stakes, many companies face an engagement gap – passive funds vote but rarely initiate change. Activists can step into that void. The large passive holders often follow proxy advisor guidelines which, in Europe, have become quite governance-forward. This means if an activist proposes “reasonable” governance changes or nominates credible independent directors, passive funds are likely to support them (especially post-SRD II, since they must justify votes publicly). An example scenario: a European company with 20% family ownership, 30% passive institutional, 50% active institutional. The passive 30% will typically not rock the boat, but if an activist leads the charge, that 30% could provide critical votes in favor of change (assuming the activist’s case is compelling and not detrimental to long-term value). Thus, passive flows, while making the market more complacent in pricing, paradoxically make it easier to win votes – as there are fewer idiosyncratic active managers to convince one by one, and more bloc votes that will side with good governance by default.
Current Market Tailwinds:
Europe’s market setup in 2025–2026 also features some macro and regulatory tailwinds for activists. The European economy is expected to grow roughly in line with the U.S. over the next two years, a big change from the last decade’s stagnation. If European corporate earnings improve and interest rates remain relatively low (the ECB has been aggressive in stimulus), many companies will generate excess cash – activists often appear when there’s cash to be deployed (dividends, buybacks) or strategy decisions to be made about investing that cash. Additionally, sector dynamics favor activism: many European firms in sectors like utilities, telecom, and banking are restructuring or consolidating. Activists can push laggards to merge or divest underperforming divisions to ride those industry trends. For example, the wave of European telecom deals has seen activists pushing for asset spin-offs (Cellnex’s investors, Iliad in France, etc.). Meanwhile, ESG and climate policies (e.g. EU’s carbon targets) might strand assets or demand transformation – activists can urge companies to get ahead of these shifts (as Bluebell did with Glencore’s coal business, urging a spin-off to improve valuation by removing the ESG overhang).
In essence, Europe’s current setup presents an arbitrage: informational arbitrage (less coverage, more mispricing), valuation arbitrage (cheap vs peers), and governance arbitrage (companies still catching up to global best practices). Activists thrive on arbitrage opportunities that can be closed through their intervention. For long-term investors, this means Europe offers a fertile hunting ground for excess returns. The market’s structural discounts and pockets of inefficiency are unlikely to correct purely on their own; they need triggers. Those triggers can be activist campaigns, either directly (if one co-invests or funds an activist manager) or indirectly (by simply being positioned in undervalued stocks that activists target). In either case, understanding the market setup helps: a family office might, for instance, overweight European mid-caps with low coverage, knowing that activism or M&A could strike at any time to unlock value. In sum, Europe’s cheapness is an opportunity – and activism is one of the keys to unlock it, in a market environment increasingly conducive to such unlocks.
Implications for Long-Term Investors
For long-term allocators, the European activism carries several implications for strategy and portfolio construction. Embracing this phenomenon can be a source of uncorrelated excess return and governance-driven value improvement, but it requires careful manager selection, thoughtful co-investment structures, and alignment with one’s investment philosophy.
Manager Selection – Picking the Right Experts:
Not all activists are created equal. As described, styles vary widely. A family office looking to allocate to an activist strategy (via external funds or managed accounts) should prioritize investment managers with demonstrated boardroom experience, local knowledge, and a long-term orientation. Key questions include: Has the activist successfully navigated the legal system in the target region before? Do they have on-the-ground presence or relationships (for example, a German activist fund that knows how to engage German supervisory boards and investors)? In contrast, a new fund that seeks quick wins might not align with a family’s horizon or reputation sensitivities. It may be telling to examine the average holding period of an activist fund – the longer, generally the more aligned with long-term value. Also, board representation is a litmus test: does the fund often seek and attain board seats? A willingness to join the board indicates commitment to collaboration and oversight, which often leads to better outcomes than an outside-only approach.
Portfolio Construction – Activist Strategies for Excess Returns:
Incorporating activism into a portfolio can bring idiosyncratic returns that are less correlated with broad market movements. Activist situations are often driven by self-help and corporate events, meaning they can succeed even if the market is flat or down. For example, an activist campaign that forces a takeover at a 50% premium yields a gain largely independent of the market cycle. In this sense, activism can be seen as a form of event-driven special situations investing. Long-term allocators might invest a portion of their equity exposure to activist funds or sidecar co-investments alongside activists. DACH and Nordic activist opportunities could complement a core equity portfolio by providing exposure to value-unlocking catalysts in markets that are otherwise slow-moving. Moreover, activism in these regions might be viewed as a value tilt with a catalyst – many family investors like value stocks but lament the lack of catalysts; activism injects that catalyst.
Alignment with Stewardship and Values:
Perhaps the most important implication is conceptual – activism, especially in its constructive European form, can align well with investing with purpose and stewardship. Family offices often see their equity holdings not just as ticker symbols, but as parts of real businesses that they partially own. Activists share that perspective: they look at underperforming companies and think like an owner, “What would I do to fix this company if it were mine?”. This mindset resonates with families who have long operated businesses and understand the value of patient improvements and good governance. Activism at its best is essentially engaged ownership, something family business leaders have practiced for generations. Instead of viewing activists as adversaries, family investors can view them as potential allies in promoting long-term health of companies. For example, if a family office holds a stake in a public company and an activist emerges pushing for sensible changes (say, reducing excessive CEO pay or exiting a failing division), the family can choose to support those efforts, thereby improving the value of their holding and the company’s prospects.
Of course, there are risks to consider. An aggressive activist could push a strategy that sacrifices long-term growth for a short-term pop (though this is less common in Europe’s constructive scene, it’s still possible). Family offices should critically evaluate activist theses and not support moves that contradict their own investment principles or time horizon. They should also be mindful of legal pitfalls – acting in concert, insider information if they get involved behind scenes, etc., requiring proper counsel. But these are manageable with good advice.
In conclusion, European activism represents an opportunity for long-term allocators, not a threat. By selecting the right activist partners or strategies, allocators can tap into the considerable value latent in European markets – value that may only be unlocked through the catalyst of shareholder engagement. The key is to do so in a manner consistent with the family’s horizon and values: favor activists who act as responsible stewards, use activism as a means to promote sustainable value creation, and integrate activist insights into one’s own investment approach. The thematic view is clear: Activism in Europe, especially in DACH and Nordic regions, is a constructive force that can align with patient capital to generate superior long-term outcomes. In the spirit of restoring a historic building, it is about working within complex layers to reveal underlying value. For family offices with their inherently patient and principled outlook, partnering in this restoration – rather than standing on the sidelines – could prove both financially and philosophically rewarding.
Sources:
Becht, M., Franks, J., Grant, J., & Wagner, H. (2017). Returns to Hedge Fund Activism: An International Study. (ECGI Working Paper & RFS publication) – Key findings on regional returns and outcomesms.z-library.sk; ms.z-library.sk.
Insightia (Diligent) – Shareholder Activism in Europe 2022 Report – Statistics on European activism trends docs.insightia.com; docs.insightia.com.
Activistmonitor (2020). Europe’s visible shareholder activism seen as tip of the iceberg… – Commentary on private vs public engagements info.activistmonitor.com; info.activistmonitor.com.
Reuters – various articles (2023) on Bluebell Capital campaignsreuters.comreuters.com, and others on European activist fund activities.
LinkedIn (J. Tischendorf, 2024). Shareholder Activists: Villains or Champions – Case studies of Bayer and ABB activism outcomeslinkedin.com.
Wikipedia and company reports for background on activist funds (Cevian Capital etc.) en.wikipedia.org; en.wikipedia.org.
BioPharmaDive (2017). Stada takeover offer… – details on premium from activist-driven sale biopharmadive.com.
Harvard Law School Forum on Corp Gov – various posts on European activism cases (for context on CIAM, etc.).
