Besieged by Activist Investors? Goldman Unveils an App for That

(Bloomberg) -- It used to take Goldman Sachs Group Inc. bankers days to analyze a company’s vulnerability to activist investors. Now, the firm is launching an app that lets clients do it themselves in seconds.

Goldman Sachs has spent two years quietly developing “Jupiter,” a program that sifts historical data on a company’s shareholders, then combines that with other information to rate its vulnerability to activists. The firm will offer the app in coming weeks to clients that could become targets of corporate raiders.

Besieged by Activist Investors? Goldman Unveils an App for That

The software gauges the risk of an activist attack in several ways. It sifts, for example, funds that own a company’s stock, showing how it ranks alongside other holdings. The idea is that a fund manager is more likely to reject an activist’s demands if the company already looks good in the portfolio -- say, growing revenue faster or paying a higher dividend than other bets. Executives can use that information to ensure they don’t fall behind, or they can try to court more investors.

“The best defense for activism is a good offense,” said Steven Barg, a Goldman partner who co-leads merger-and-acquisitions solutions. “It’s having the highest possible stock price and a roster of investors that believe in your stock.”

Activism defense is a growing practice on Wall Street. Last year, investors spent record sums trying to shake up corporate boards and agitating for other changes, according to Lazard Ltd. At target companies, the incursions are known to upend long-term strategies, oust company leaders and curtail expansion efforts to instead boost payouts to shareholders.

Goldman has been pouring money into technology to simplify tasks such as underwriting stock offerings -- eliminating thousands of hours of work previously done by humans. Through Jupiter, dealmakers can create presentations in a fraction of the time it used to, according to Barg. And customers will be able to explore the data themselves.

The app, which works on mobile phones and desktop computers, was developed by a team of investment bankers and data scientists, including Barg and Richard Rivero, a managing director who leads what the firm’s investment-banking division calls its “strats” effort.

Discovering Correlations

In addition to helping clients analyze and profile their current shareholders, Goldman’s app also identifies potential investors. Companies can see how they rank in fund portfolios by almost two dozen metrics, including return on equity and dividend yield.

It also blends data to create a simple, proprietary score for a company’s vulnerability to corporate raiders, expressed as a percentage. The number is fluid, changing as new data arrives. As of Friday, a company scoring 76 percent for a year or more was deemed three times more likely to be targeted by an activist, Barg said.

Some of the key inputs are fairly obvious, such as the total return on a company’s stock. But backtesting also showed the importance of other data, such as dispersion of analyst rankings. When analysts can’t agree on whether to buy or sell a stock, it may mean management needs to do a better job explaining their strategy -- or risk attracting activists.

“If your shareholders know who you are and own you for the right reasons, they’ll continue to hold you, and hold you dearly,” Barg said.

©2018 Bloomberg L.P.