According to Pitchbook, 2017 is shaping up to be a record year in terms of capital invested in mergers and acquisitions — the events that recast companies, industries, employee and customer and investor expectations — even brand identities. Mergers, acquisitions and divestitures are quintessential change-management events and some of the most challenging communications scenarios in the corporate lifecycle.
The moment a transaction is announced, risk is created, uncertainty is introduced, strategic rationale is scrutinized, first impressions are cemented and corporate culture and brand identity get ambiguous. To be clear, I am talking about strategic deals — transactions that fundamentally reshape the character of a company, rather than smaller “bolt-on” transactions. If you work for a public company, the sheer visibility of a major transaction makes all of this more intense. Ask a Whole Foods employee, vendor partner or investor how they felt when they learned about Amazon’s takeover bid. “Did that just actually happen?” might have been a first reaction.
This article is featured in O'Dwyer's Aug. '17 Financial PR/IR & Professional Services PR Magazine
Through our investor and corporate relations work, we’ve led many clients through many transformative transactions and the role corporate communications plays is always an intriguing variable. M&A transactions are devised by top management, a small team of internal strategists, outside advisors and the board of directors. Ideally, executive management realizes the strategic value of having the corporate communications function involved right at the beginning. However, it’s not uncommon that corporate communications is notified of the transaction when a deal announcement is imminent, which diminishes the important strategic impact it can have.
Corporate comms. as risk management
I believe the reason for this is that management sometimes views corporate communications simply as a dissemination mechanism. They don’t immediately make the critical connection between communications and deal risk. Management teams are willing to take on additional market risk to create new opportunities. But they are equally eager to start mitigating that risk the moment a deal closes. In a transaction, corporate communications is, in every way, a risk-management function, one as important as any other risk-management dimension of a transaction.
The excitement of signing a purchase agreement and closing a deal quickly gives way to the pressure of “execution risk.” Can your organization pull off this new combination and deliver on the deal promise? Will this transaction be understood and embraced by your employees, communities, partners, investors and regulators? This entire concept of moving affected audiences from awareness to adoption is one of the largest sources of risk in a deal and is almost purely a function of communications.
Corporate communicators have a responsibility to educate management on their role in mitigating deal risk and demand to be part of the transaction team at the very beginning. Here are just a few examples of deal risk that communications must manage:
Management teams spend months, even years, developing M&A strategy and assessing potential transaction targets. At the time of the deal announcement, they are beyond steeped.
Unfortunately, perceptions of a transaction among most of your key constituents are cemented with the initial announcement, without the benefit of months of immersion into why this all makes sense. Even if a transaction won’t close for several months, it’s considered “virtually closed” in the minds of those affected upon that first announcement. If your organization is publicly traded, the market and the media weighs in almost immediately, and this has a big impact, positively or negatively, on how internal constituents perceive the deal.
Every aspect of your communications platform — key messages, responses to questions/objections/criticisms, ability to satisfy the WIIFM (what’s in it for me) needs of affected constituents and your tactical approach to communications — need to be exceptionally well considered and mapped out. Then, you need to reinforce all of this up to and well beyond deal closing. Get it wrong, and you set the organization up for a difficult integration period.
Message control risk
While they don’t always take it, the acquirer has the right to control the overall approach and messaging in deal communications. Acquirers assume the execution risk after the deal closes. It’s your obligation and right as a corporate communicator on the acquirer side to make sure the communications program helps manage that risk — from the moment of the announcement through closing. You need to get clear insight into the nature and quality of communications used by the target company and pinpoint deficiencies and gaps.
Transactions, especially those in the publicly traded sphere, tend to get framed in the context of the strategic rationale, price multiples, leverage ratios and obtainable synergies. It’s the arcane “dealspeak.” These measures mean everything to the capital markets.
However, they mean much less to those constituents who power your business every day and who are operationally affected — employees, customers and partners. For the message of a transaction to resonate, corporate communicators need to find elegant ways to translate these concepts, to create a simple narrative that can rally audiences.
Communications channel risk
Poor or inappropriate cascading of communications can needlessly create additional risk, by appearing to ignore the personal sensitivities and political realities that exist in any organization. The bigger the change for your constituents, the more they need to hear from you face-to-face. These are common sense, but often overlooked, and corporate communications needs to drive this.
Downstream message bearers play a critical role. Top-down communications is essential in a deal. But employees turn to their peers, their boss, the grapevine, business media coverage and social media to test the messages they are hearing from the top. A uniform message helps drive acceptance and engagement. Supervisors need to be prepared and coached to be advocates of the transaction. Moreover, they need to quickly identify and correct misinformation and false perceptions.
For employees, it takes time for the logic of a transaction to sink in, because it must work its way past emotion, which can impact morale and, therefore, the execution that needs to occur for a successful integration. Frankness, transparency, acknowledging that questions might come faster than answers, giving audiences a feedback channel and committing to regular updates on progress as the organizations come together can help them move through the emotion that surfaces with impending change.
On the deal team, on day one
The excitement around a large transaction is palpable. But you don’t measure the success of a transaction on the day you announce it, or the day you close it. You measure it three years down the road — even five years — when your employees, customers, partners, investors and other audiences have embraced it and are reflecting the potential you believed possible. That’s all a function of engagement, and effective communications drives it. The role of corporate communications is one of the most strategic and indispensable factors that turn deal risk into return and it belongs on the deal team, on day one.
Dave Heinsch is Vice President/Corporate and Investor Relations Lead at Padilla.