Why Small Caps Continue to Dominate Shareholder Activism
Each year, small-cap companies continue to account for the majority of activist campaigns. The pattern is remarkably consistent and increasingly visible across investor conversations, capital markets activity and boardroom discussions. While high-profile proxy fights often spotlight household names, most activism activity continues to play out inside smaller public companies.
Three industry experts point to a mix of market structure, affordability and organizational readiness as the real drivers.
Keith E. Gottfried, CEO and Founder of Gottfried Shareholder Advisory, puts it plainly. There are far more small-cap companies than large-cap companies, and it is significantly easier for an activist to build a meaningful position in a smaller company. The cost of entry is lower, the percentage ownership can scale faster and small caps are more likely to experience stock price dislocation, even in strong markets. That gap between intrinsic value and trading price creates opportunity. Smaller companies also tend to have multiple operational and strategic levers available, giving activists several ways to push for value creation.
Andrew Shapiro, CEO and President of Lawndale Capital Advisors, adds that inefficiencies are often easier to spot and easier to fix in small-cap environments. Analyst coverage tends to be thinner, disclosure can be uneven and capital allocation discipline is often less mature. Governance dynamics also play a role. Smaller boards, heavier insider influence and fewer institutional checks can leave companies more exposed to outside pressure. In many cases, a relatively modest ownership stake paired with a focused plan can drive meaningful operational and strategic change.
Brendan M. Foo, Partner and Global Head of Corporate Contests at Forward Global, highlights accessibility and preparedness. Small caps require less economic exposure to build a position, making them attractive not only to established activists but also to newer or first-time investors. Many small-cap companies also operate with leaner advisory resources, limited vulnerability assessments and less formal defense planning, which can make them feel like less intimidating targets.
For business leaders, board members, investor relations teams and transaction advisors, this is no longer a peripheral issue. Activism is part of the operating reality for small public companies, whether leadership believes they are a likely target or not. Capital allocation clarity, governance readiness, disciplined disclosure, investor engagement and scenario planning increasingly influence how effectively a company can respond when pressure emerges.
In today’s market, resilience is built not only on operating performance, but also on preparation, credibility and the ability to engage constructively with shareholders when scrutiny intensifies.
Editor’s Note: Join us tomorrow to discuss, “Why Small Caps Are Attractive to Activist Investors.” Register for the free webinar here.
