Best Way to Break Into Shareholder Defense?

Hi everyone,

I am currently an Investment Banking Summer Analyst in the M&A group of a bulge bracket firm (think CS / BAML / Citi). One aspect of finance that I'd heard quite a bit and read about is shareholder defense - specifically, advising boards through hostile takeover attempts and in general providing advisory services to boards during times of shareholder unrest. I've talked to quite a few people asking for advice on how to get more involved in shareholder defense specifically - I know I am young in my finance career, but I'm extremely interested in the area.

Unfortunately, a lot of people have given me advice along the lines of "Well, you just end up working on cases of shareholder defense", but those seem relatively rare to bank on making a career out of it. Other people have suggested aiming to work at activist hedge funds and working back towards banking to develop a career in shareholder defense. I would love to hear what some of your guys' thoughts are.

Thank you so much, I appreciate it!

Comments (35)

Jul 11, 2017 - 6:13am

Have you read Dear Chairman?

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Jul 11, 2017 - 9:17am

Disclaimer that I don't know much about the area, but the only piece of credible advice I've ever been able to get on the topic is that the JD/MBA route is a good way to go if you want to go this way since good takeover defense requires a lawyer level understanding of the contracts that impact corporate governance.

  • 1
Jul 11, 2017 - 9:57am

It seems like the groups are not that sought after because very niche and not as much of a hard skill as regular M&A. Plus you only advise corporations so not like doing "activist investing". Do others on here agree with that sentiment?

Jul 12, 2017 - 10:41am

I don't know of any bank(or maybe I haven't looked hard enough) that has a dedicated takeover/shareholder defense team. As mentioned, they're such a niche group and likely can't drum up sufficient deal flow to justify having a dedicate team strictly for that purpose. I back the sentiment of potentially pursuing a law degree with an MBA. Bill Anderson, Evercore(ex GS), came from a background in M&A law and is now one of the most reputable individuals in the industry for takeover defense.

Jul 12, 2017 - 10:55am

They might provide the service but like I said, the execution is done out of either a generalist pool of juniors or other industry/product groups. The banks might have a senior or two leading the group but there is no dedicated team from analyst to MD. I've never spoken to anyone in the industry below the VP level that dedicated 100% of their time to takeover defense.

Jul 12, 2017 - 11:42am

It's pretty unlikely any bank will dedicate significant resources (i.e., for a junior person to start and make a career out of it) because shareholder defense isn't a great revenue generator. Most of the time you're doing this on retainer or small fee in order to position yourself for larger sellside/buyside assignments.

Also, doing a JD/MBA largely for the purposes of joining a shareholder defense group is a terrible value proposition...The top banking MDs that came from legal backgrounds were basically all partners that came up from the Tier 1 law firms (Cravath, Skadden, Latham, etc). Just having a JD doesn't get you much besides maybe an Associate position instead of having to start off as an analyst. Not to mention public companies large enough to warrant an activist attention will have some top law firm on retainer when it comes to the actual legal points. In fact, I don't even think activist investing even gained that much prominence in the public eye up until a few years ago (read, not that it didn't happen it just wasn't as big of a deal) to allow for someone to start and make a career out of it (I don't mean getting a job for two years, I'm talking about moving up the ranks to a senior level position). You're far better off talking to your staffer about doing shareholder defense stuff on a one off basis to see if you actually enjoy it (like many things in life, it sounds much cooler on paper), before decided to dedicate a career out of it.

Jul 12, 2017 - 11:39am

Fair enough, I have seen analyst and associate postings specifically for shareholder defense groups as well. That's because one MD that drives the majority of the shareholder defense work still needs someone to do the bitch work, not because the group itself is viewed as a large revenue generator and meant to be a career builder.

Jul 14, 2017 - 12:05pm

It's certainly not a bad way for an MD/bank. Why not have an ancillary service like shareholder defense as an additional product to sell to your (potential) clients? But the product itself is not a large revenue generator. The retainer fee and maybe success fee is peanuts in comparison to M&A fees. Like you said, it's to position the bank to be part of an M&A mandate. The work itself, especially for junior level person that is dedicated to the shareholder defense group, is not great. It can be interesting I suppose (each to their own...), but any of the technical modeling (what would a buyback look like, what if we sold a division, etc) that might be required typically falls within the responsibility of the coverage group and you'll have almost no visibility into M&A processes. Most of the skills you gains aren't particularly transferable unless you wanted to go into IR or something along those lines. If you're going to go into IB, ideally you should be targeting the M&A group or a strong coverage group that covers all products including M&A. At the end of the day, it's much easier and better for your career long run (even if you wanted to stay in banking) to build solid technical understanding of M&A processes and modeling skills early on.

Just think, being right bookrunner on IPOs and follow-ons is probably one of the highest paid services relatively to how much work you actually have to do for a bank. But that doesn't mean starting out in ECM is great for an analyst or associate's career. As a side note, "taking a company public" sounds cool on paper, but drafting S-1s is some of the most boring work to be done.

Best Response
Jul 13, 2017 - 3:20pm

To start, in response to several posts, a number of BBs and EBs have devoted defense teams (in several BBs, they're housed under M&A) and the number is growing as it is seen as a good way to diversify the IB business (along with restructuring) in M&A down cycles.

I think it's important to understand what activist defense work actually entails, in general:

(A) Corporate governance - understanding the rules/regulations within a company and within the broader legal context governing permissible actions by management, shareholders and other constituents (i.e. submitting issues for proxy) and analyzing strengths/weaknesses of a company's management/board structure
(B) Financial analysis - analyzing returns to different constituents stemming from financial and market performance, dividends, buybacks, M&A, divestitures and other strategic activity
(C) Public relations - managing the narrative in the public context, especially when an activist is publicly saying " support our initiative given how poor the company performs in areas X, Y, Z"
(D) Shareholder management - somewhat tied to public relations, analyzing and understanding a shareholder base, how they view the client, how they act/vote, etc.

In the few anecdotes I have, activity (A) is typically split between banking and defense, most of the heavy lifting on (B) is carried by banking, and (C) and (D) is driven by defense.

So how to get in the door? In my view, given that activist defense is a newer area, there is no set path in. However, if you look at the heads of some of the most active defense groups, they either come from legal (Evercore, MS) or M&A (GS, JP, Houlihan) backgrounds. Those are also the most common routes in at the junior levels as far as I can tell, although, I've also seen individuals with public relations and investor relations backgrounds as well. If you're looking for a recommendation, personally, I would say get your foot in the door through the traditional IB recruiting process then once in, raise your hand when you declare or lateral in to the practice. Given that most kids are focused on other areas, chances are if there's a need and you stand up, you'll get a good shot.

Another tip, look at the job postings via a Google search and see what experience the top banks are looking for in candidates.

Jul 13, 2017 - 5:05pm

I know a shareholder activism MD at a MM and he has a JD, MBA, and CPA. So those qualifications might help. His team's job is basically to round up business by defending clients and subsequently selling them on some other banking service. The job doesn't seem very banking oriented, but its truly interesting stuff. They don't hire juniors though because it requires pretty specific knowledge. It seems like a role you move in to after doing traditional banking.

Jul 13, 2017 - 5:03pm

Hate to break it to you: bad idea. As a junior person in the M&A group, just try to work on as many M&A deals as possible. Shareholder defense, governance, etc. will gradually weave its way in.

Oftentimes, the shareholder defense work in these groups is more of a support role that leads to winning M&A mandates, eg sale under pressure by hedge funds, sale of noncore division, etc. Many banks see it as a relationship building / lead generation opportunity.

Focus on developing your core skillset first and you'll figure out your career as you progress.

Jul 14, 2017 - 12:47pm

I don't agree with assertions that activist defense is not a revenue generator. I worked in M&A at a well-known boutique and worked on several assignments that progressed like this:

  1. Activist approached large public company and made recommendations
  2. Company hired us to review their options with respect to the activist, including assessing the recommendations of the activist
  3. We evaluated the activist's recommendations, as well as other potential alternatives (governance related, M&A related, etc.)
  4. We were the advisor on any M&A transaction that resulted (e.g., spin-off, non-core divestiture)

From our perspective, it was another way to be in front of the senior executives and Board of large public companies, so I'm not sure why that would be a bad idea.

Jul 15, 2017 - 2:23pm

I don't think anyone is suggesting that shareholder defense isn't an appropriate product to offer. But to your point exactly, it's not fair to look at it in isolation because it's not a core revenue generator for the banks. It is meant exactly as you said, a great way to stay in front of c-suite and the board to build a better rapport and leverage it into an advisory role on some kind of M&A transaction. What was your fee structure? I would imagine it was a couple hundred thousand of retainer fee quarterly to review the options and make recommendations, and then a success fee which the retainer fee would net against in the event of a successful M&A transaction. That's how I've always seen it, and that's just further validates the point that shareholder defense is an ancillary service to the main M&A product. And the more important point addressing the OP's questoin is what is good for the bank may not necessarily be good for the analyst or associate trying to build a career early on. Sure there may be those few analysts that decide to stick it in ECM or these days possibly shareholder defense for their entire career, but what kind of transferable skills are you building that maximizes your career optionality and earnings potential if shareholder defense is all you did?

My fundamental recommendation is to get into the best coverage group or M&A group, and then volunteer to do some shareholder defense work when it comes up and decide from there if it's something you want to focus on beyond the analyst program. I'm sure there are a few kids was in a shareholder defense only group and exited into an activist hedge fund, but by far and away it's still analysts that are in top coverage/M&A groups that are getting those exits.

Jul 16, 2017 - 3:13am

Some of the top boutiques have specialized activism defense practices. Evercore has the best one - one of my friends just got hired in as a FT there in that group. They won their portion of the WF-Amazon deal by advising WF during the whole Jana crisis. I think Lazard and Centerview have good ones too. I know Goldman just put a more dedicated team together within their M&A division (Goldman's M&A is small relative to other banks because they execute most of their advisory out of their industry groups). Idk about other BBs though.

Btw, "Think CS/BAML/Citi" isn't really a similar set of firms. With the exception of debt where they're all pretty big players, BAML is in the top group with MS, GS, JPM, and CS, and Citi are a tier below with DB, Barclays, etc.

Aug 8, 2018 - 4:08pm

I know most these groups pretty well. The hours are generally similar to the rest of IBD. Sometime it might feel a bit more chill because the activism team does niche work and it's harder for the industry bankers to question the content. So if the team is really swamped, they can cut corners sometimes and get away with it. The activism team is also a bit softer culturally sometimes because it's run by someone with a law background; not that lawyers are much softer than bankers, but on the margins you see some differences (% of female defense bankers is higher than in regular IBD).

Overall, I agree with the warnings given by other commenters above that activist defense work is very different from traditional IBD and will significantly impact exit opportunities. The field is still new (especially at the junior levels) so there isn't a lot of past data. But it will be materially harder to develop strong modeling and financial analysis skills as an Analyst/Associate in activist defense. Those skills are essential to any PE/HF role. An activist fund is still an investor at the end of the day, and I'd be very surprised if they are willing to take someone whose finance skills aren't developed.

Junior bankers in activist defense who want to end up in PE/HF should make the switch to a regular IBD group, even if that means taking a haircut on rank. Nothing wrong with joining an analyst class when you're 24 or even 26. It's much easier than trying to fit a round peg into a square hole by convincing people that the wrong experience is still good enough.

Activist defense is good for 1. people who really want to do IBD but can't get an offer . . you can do 1-2 years of defense and make a move later 2. people who truly like the narrow field of corporate governance more than traditional finance and business topics.

Aug 20, 2018 - 5:06pm

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