Photograph by Eric Francis/Bloomberg

ConAgra Foods’ corporate headquarters in Omaha

Onetime Carl Icahn protégé Keith Meister, 39, engineered a quick sale of Ralcorp Holdings (RAH ). which makes private-label foods for grocers. In August he bought 5 percent of Ralcorp, which walked away from a takeover bid by rival ConAgra Foods (CAG ) the year before. With Meister on the board, Ralcorp changed its mind and sold. When ConAgra completed its $5 billion acquisition in November, Chief Executive Officer Gary Rodkin said it made his company a leader in North American foods. Ralcorp CEO Kevin Hunt said the deal provided “compelling cash value to shareholders.” Meister’s Corvex Management turned a quick $90 million profit on its $189 million investment, a 48 percent return in a matter of months.

Amid a lukewarm dealmaking environment last year, shareholder activists such as Meister launched 219 campaigns against companies they deemed undervalued, the most since 2008, according to data from FactSet Research Systems (FDS ). “We have seen a dramatic increase in the level of shareholder activism,” says Patrick Ramsey, co-head of Americas mergers and acquisitions at Bank of America (BAC ). who predicts that activism will contribute to an increase of M&A activity this year. High returns attracted about $3.8 billion of investment to activist funds in 2012, compared with a net $1.8 billion in 2010, according to Hedge Fund Research. Their returns averaged 25 percent last year, reports money management firm AlphaClone.

Activist investors, mostly hedge fund managers, were dubbed corporate raiders amid the hostile takeovers of the 1980s. Now activists tend to buy at least 5 percent of a company’s stock and, through Securities and Exchange Commission filings, signal their intent to push for new strategy, board seats, or even the company’s sale. “Substantial amounts of money can be made through activism, but you have to have a large amount of long-term committed capital to be successful,” says Icahn.

While many hedge funds try their hand at activist investing, only a few specialize in it, including Starboard Value, Third Point, and ValueAct Capital. At Third Point, founder Dan Loeb on Jan. 9 disclosed a stake in Morgan Stanley (MS ). He’s urging changes to the bank’s fixed-income unit, board, and compensation. His push for an overhaul at Yahoo! (YHOO ) helped oust Chairman Roy Bostock.

The slow mergers-and-acquisitions sector could use a boost. Global dealmaking shrank 10 percent, to $2.19 trillion, last year, according to data compiled by Bloomberg. Even institutional funds have turned to activists. The California Public Employees’ Retirement System, or CalPERS, has invested $5 billion of its $252.5 billion in activist funds in the past five years and will build its own such fund with $1.25 billion over the next five years, says senior portfolio manager Anne Simpson. The California State Teachers’ Retirement System, or CalSTRS, has a $3 billion portfolio of activist investments among its total of $154.3 billion under management. Investment officer Aeisha Mastagni says, “We wanted to consider all options, due to the low-return environment.”