Just when you think that merger and acquisition transaction numbers can’t get any higher, they keep breaking records. Fueled by near-zero interest rates, monetary stimulus, and investor demand for corporate debt, M&A showed the highest level of activity over the past nine months than at any time in the past four decades. Moreover, there’s zero sign of a slowdown: Grant Thornton’s recent survey found that 68% of M&A professionals expect deal volume to keep increasing.
If your organization is planning an M&A transaction in 2022 or any other time, you need to be ready to tell your story well and sell the deal to all stakeholders. Following are the critical points to keep in mind.
1. Start with crafting a compelling deal rationale.
The rationale should be a few key messages that explain why the transaction is in the best interest of all stakeholders and will create value for shareholders. It should be presented in the context of the company’s stated strategy and value creation plans and consider the skeptic’s point of view.
One of the best ways to develop a compelling rationale is to think through the questions that will be asked on announcement day.
- Why is this deal in the best interests of shareholders?
- Why is the seller selling now and to you?
- How will the acquired company be more valuable as part of the acquirer?
- How will 1+1 = 3 from a value creation perspective? How can that be measured?
- What are the revenue and expense synergies, and what is the timing to realize them?
- How does the acquired company fit into the existing business? What is the long-term strategy for the combined companies?
- What is the acquirer’s experience integrating acquisitions, and what are the plans for this transaction?
Once agreed on, the deal rationale should be consistently communicated in all deal-related communications materials (press releases, investor-call scripts, stakeholder letters, Q&As, and others).
2. Know what information about the seller is in the public domain.
One of the first things analysts and investors will do when seeing acquisition news is to search the web for information on the acquired company. Whether it’s a well-known public company or an unknown private one, the buyer needs to know what information investors and analysts might uncover on their own that will inform their impressions about the transaction as well as the questions they’ll ask. Do a thorough audit of all information in the public domain — from the company website to press articles and social media — and be especially alert for anything that might be negative, concerning, or inconsistent with your story.
3. Craft a thoughtful press release that gives Wall Street the information it needs.
The press release announcing the transaction is often the first opportunity to sell the deal to stakeholders. It should be considered an important forum to control the message with a compelling deal rationale. From an investor’s perspective, information reduces risk. Investors will want to understand how the acquisition will affect the company’s risk profile and financial performance, particularly how it will generate a return on invested capital. The release should have
- A strong headline that states the deal size (if it’s meaningful) and encourages media pickup
- Terms of the transaction
- Expanded discussion of the deal rationale presented in CEO quotes from one or both companies
- Impact on financials/outlook or a commitment to provide later
- Financing for the transaction
- Anticipated close date (keep it general to provide leeway)
- Investor webcast or conference call details, if needed
- “About us” details for the buyer and the seller
- Media and investor relations contact information
4. Don’t forget employees, customers, and other key stakeholders.
That includes employees and customers of both companies, and the communication must begin on announcement day. The goal is to make sure important stakeholders hear the news directly from management rather than listening or reading about it from other sources.
Employees will want to know how their jobs will change due to the transaction. Top concerns will be any changes in their reporting structure, their responsibilities, compensation, benefits, stock options, potential layoffs, and new growth opportunities. Be careful to avoid any commitments that might be reversed (e.g., saying there will be no layoffs when, in fact, there may be some redundancies later). Remember, it’s OK to tell employees that it’s still early in the process, but management is committed to providing updated information as things progress. Finally, keep in mind that anything you send out to employees could quickly end up in the public domain.
Employees, especially the relationship managers, will need to be armed with talking points to ensure message continuity when fielding customer calls.
In an M&A transaction, customers don’t always think bigger is better. Instead, they will want to know that they are highly valued and it’s “business as usual” — they’ll get the same great products and service they’ve always received from your company, on the same terms, through the same people.
Employees, especially the relationship managers, will need to be armed with talking points to ensure message continuity when fielding customer calls. When there is a shortlist of large customers, it’s worth the effort to conduct proactive outreach via phone calls on announcement day.
5. Leverage the media to tell the story, reinforce the deal rationale, and position the transaction in the context of the corporate strategy.
A thoughtful media strategy can result in positive coverage. The deal announcement is the newsworthy event, not the deal close. The best way to enhance the odds of generating coverage for an M&A transaction from a major financial publication or broadcast outlet is to disclose the deal size and transaction terms and give the story to a trusted reporter as an exclusive. Some reporters are eager to get exclusives and are willing to cover small transactions if they are the only ones with the story. Once you’ve identified a reporter interested in an exclusive, brief the reporter before the announcement to ensure a complete understanding of the transaction and an accurate and positive story.
6. Focus on disciplined project management from start to finish.
Successful M&A communications require planning and careful coordination at every step. Develop a detailed timeline for both the preparation process and announcement day. There are lots of questions to consider — do you want to have an investor call on announcement day? Do you want to create any additional communication channels — a microsite, video, or deal-at-a-glance fact sheet? How and when will communications go out to employees and customers? Are there other stakeholders to consider, such as critical vendors and partnerships? Logistics matter greatly when several stakeholders are involved. For example, the team must consider the different time zones involved and carefully manage material, nonpublic information.
7. Don’t be surprised if your stock trades down on announcement day.
Despite best efforts to communicate the merits of the deal and favorable reports from sell-side analysts, an acquirer’s stock often sells off immediately after news of an acquisition. There are many reasons for this — from merger arbitrage activity (buying the target and shorting the acquirer) to a long history of acquisitions that didn’t work out and resulted in massive goodwill write-downs. So, keep in mind that this is just an initial reaction and remember the words of Benjamin Graham, the father of fundamental security analysis: In the short run, the stock market is a voting machine, but in the long run, the stock market is a weighing machine. So, don’t worry too much if the votes aren’t cast in your favor on announcement day. Suppose future results show that the acquisition did indeed have the projected positive impact on earnings, cash flow, and other gauges of performance. In that case, the weighing machine will ultimately take control and reward the buyer for creating shareholder value.
Moira Conlon is the founder and president of Financial Profiles.