Managing M&A communication
February 2019 | FEATURE | MERGERS & ACQUISITIONS
Financier Worldwide Magazine
February 2019 Issue
Companies spend billions every year completing mergers, and yet many fail. One of the biggest issues which can upend a deal is communication. According to the Harvard Business Review, the failure rate for M&A is between 70 and 90 percent, and though it is not the primary cause of deal failures, inadequately communicating plans to employees can be fatal to a transaction. Employees tend to resist change and may not cope well with stress. Thus, effective and timely communication can help manage these variables during an M&A process.
Quickly capturing the synergies of a transaction is a major goal to achieve. There can be confusion about the future direction of the company, and employees and their work can suffer. Productivity can slip, employee engagement can fade and value creation can falter. It is here that the importance of communication comes to the fore.
But, communication is often overlooked following deal announcement. “While the deal team and management are rushing to get the deal signed and announced, they cannot lose sight of internal communication,” warns Josh Hochberg, deputy general manager of financial communications at Edelman. “This is particularly crucial in the weeks, months and quarters following the deal announcement. A sound, transparent employee strategy can help to reduce anxiety and confusion and maintain positive corporate culture and business momentum. Ultimately, this means better integration and a smoother road to increased valuation.”
Reaching and keeping every employee informed is one of the biggest challenges companies face during M&A, especially within large organisations, suggests Nicole Alvino, co-founder and chief strategy officer for SocialChorus. “Often, organisations are not adequately prepared for post-merger integration processes. According to the Boston Consulting Group, only 39 percent of those surveyed had any sort of standardised processes for post-merger integration. Lack of process can lead to confusion and disorganisation at a time when employee communication is imperative. During times of change, companies need to reach all employees with the right information at the right time. If a company does not have an M&A communication plan in place, it can leave employees uncertain and misinformed,” she adds.
So what more can companies do to ensure that their employees are consulted and kept ‘in the loop’?
For James Fletcher, a partner at Ashurst, the key considerations are the purpose and the implications of the communication. “If the communication is triggered by a regulatory requirement, the party making the announcement should, of course, ensure that the requirement is met. If the communication is voluntary, they should consider whether it really is in the long-term interests of the company and the deal to make that statement. Remember, once something is said publicly, it cannot be unsaid. Moreover, you will be held to what you say. Therefore, companies must ensure that the statement they are making is factually accurate.
“They should think carefully before making a forward-looking statement, as there may be regulatory and reputational implications of doing so. For example, on a public M&A transaction governed by the UK Takeover Code, a post-offer intention statement must be an accurate statement of the party’s intention at the time that it is made and made on reasonable grounds. In due course following the end of the deal, that party will have to announce whether or not it has satisfied its intention statement,” he adds.
Ensuring that both internal and external communication is handled properly is another important step. Dodging difficult issues and hoarding information are just a couple of the errors companies make during M&A.
Other mistakes include failing to communicate to investors the rationale for the deal, and allowing a leak early in the process to scuttle talks or bring in another bidder once it is known that a company is in play. “The bedrock of any external communication plan is a solid collaboration as early as possible between management, advisers and the communication team to build messaging around the key reasons for why the deal makes sense and to create a leak strategy that, among other things, anticipates any activities by the companies involved that could accidentally give away the talks,” says Mr Hochberg.
Keeping employees in the dark is also unwise. According to Ms Alvino, ensuring that employees are informed throughout the M&A process can build commitment to the organisation, and will enable staff to understand the company’s wider strategy. “Lack of communication leaves employees unmotivated and confused. Even if the company is not yet in a position to talk specifically about how changes would impact individual employees, saying nothing at all is a mistake. Silence from leadership can lead to absenteeism, a decline in quality of work and productivity and poor engagement. Even if leadership do not have all the answers, they should proactively address concerns and celebrate employees’ contributions to keep them connected to the company and invested in its success while the details are being ironed out,” she says.
Making statements and promises that are not accurate or deliverable, is another way to burn bridges with stakeholders. “Broken promises tend to be remembered. They can be damaging to the reputation of a company with the public, investors and regulators, and may have regulatory implications too,” points out Mr Fletcher. “Kraft’s so-called promise to keep open Cadbury’s Somerdale factory is one of the more well-known examples of this in the UK. There is now a formal, more prescriptive, regime in the UK Takeover Code governing post-offer undertakings to try to ensure that parties comply with them.”
Fail to plan…
One of the best tools to increase an acquirer’s chances of completing a successful transaction is a communication plan. Parties must define their audience, consider the timing of any announcement and put thought into each declaration. A communication strategy should also feature damage control measures – M&A deals can create unforeseen circumstances and companies must be able to respond. Though it is impossible to anticipate every incident and to plan a response, companies must be prepared to act quickly to contain a negative situation. Failure to do so could be detrimental to the M&A process.
“Planning communication for a business going through an organisational change is vital,” explains Steven H. Goldberg, a partner at BakerHostetler. “A plan outline will include timelined communication protocols for every stage, including an initial investor communication explaining the deal to shareholders and rallying necessary support, a deal closing statement announcing the deal to the public and to the employees and a welcome letter drafted by both sides to employees explaining the future, as well as a follow-up note from human resources detailing the specifics. While change is often the catalyst for growth, deal parties must keep in mind that change can be a scary concept for those not initiating it. Planning accordingly can help mitigate unnecessary pitfalls.”
A successful plan should take into consideration the need for effective, authentic and personalised communication, according to Ms Alvino. “When designing this plan, companies need to first consider how they can reach every worker in a way that is personalised to them. This includes developing a strategy that provides tailored messages based on individual employees, in their own language and targeted to their roles, needs and tenure. A store manager in Tokyo has different concerns than a general manager in Philadelphia or a plant worker in São Paulo. Every worker needs and deserves to understand how the merger will affect them,” she says.
According to Mr Goldberg, it is equally important that communication between deal professionals is not overlooked. “For international companies, the retention of multiple professional firms is a necessity. With that, often comes an unclear communication hierarchy and different transactional values, as well as incongruous capabilities. Firm A is capable of meeting the unreasonable demands of the other side, but firm B is not. Firm Z has conceded a point, while banker Y believes that negotiations are still ongoing. Establishing a communication protocol, determining who speaks for the deal and limiting conversations regarding specific deal points to only specific people can help avoid communication mistakes,” he adds.
Transparency is also important. Though it may be difficult to be completely transparent with employees and the market, due to regulatory constraints, it is possible for companies to provide commentary to internal and external audiences without breaching regulatory standards. Companies can produce thought leadership articles or release research supporting a deal. Such measures should be factored into deal planning.
A strong communication plan should also include contingencies in case the deal is blocked by regulators or investors. It should contemplate what might happen if the deal fails, forecast different scenarios and outline how the company can control any fallout if the proposed transaction does not come to fruition.
Embracing the future
The M&A process is dynamic and will continue to change, as will the communication aspect of any deal. “We are already seeing computers and specifically artificial intelligence (AI) change the way we attack diligence and contract drafting,” points out Mr Goldberg. “I think we should look for further advancements and incorporation of AI into negotiation communication, as well as post-deal employee integration. That said, person to person communication will always be key to getting from term sheet to closing and shepherding employees through the often unsettling period of organisational change.”
Mr Hochberg believes a good part of M&A communication has already evolved beyond the traditional press release. “It is becoming standard practice to involve a digital team that can create assets such as an informative microsite, infographics, blog posts, videos, an SEO strategy and targeted digital advertising. All this should aim to showcase the merits of the transaction and target audiences that the company needs to support the deal,” he says.
Effective communication can help employees let go of the past and embrace their new future, allowing the company to realise the value of the deal sooner. Getting communication right also helps to mitigate other M&A risks, such as loss of key talent, diminished customer service and satisfaction, a lack of confidence in leadership and resistance to change. It is vital that companies take control of the narrative surrounding their deal.
Furthermore, frequent and open communication is central to post-deal integration and value creation. Once the deal has closed, the company must maintain frequent communication, both internally and externally, if the merger is to be successful. These announcements must be fully aligned with the company’s M&A strategy. The process must also be fluid – while scheduled communication is important, companies and management must be able to provide reactive updates and respond to questions and feedback. Technology has a large role to play in this process. With the right technology in place, employees will be able to see their concerns handled in real time.
Throughout the M&A process, responsibility for managing the expectations of employees, taking responsibility for guiding post-deal efforts and avoiding miscommunication, ultimately lies with senior leaders.
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