The Importance of Clear
Communications During a Merger or Acquisition
Public companies often complement internal growth by acquiring private companies. Due to the recent economic downturn, companies are now able to make these acquisitions at a fraction of what they would have paid just a year ago. As venture capital sources and IPOís have dried up, many private company investors now see buyouts as their most viable exit strategy and are willing to negotiate. Public companies are taking advantage of this fire sale to add technologies and products they previously could not have afforded.
Once the negotiations are complete and the two entities have agreed to move forward, the fun has just begun. While insiders may agree that a proposed acquisition will strengthen the company, management needs to be aware of the importance of communications during the M&A process. After all, almost two thirds of all mergers fail. Investors have a right to be worried.
To ensure a smooth reception, companies need to aggressively reach out to the investment community during the period between approval and execution. Below are some key elements which should be addressed.
Appoint a team of key players from both companies. Identify the consultants, senior executives and key legal, finance, accounting, investor relations and public relations officers needed to complete the process. Make sure that they have the resources they need and are able to devote priority attention to strategy and execution. Clearly define the roles of each team member. Until the deal is finalized, restrict information on the planned merger to this small group.
Develop a communications plan. After the two companies agree to merger, there are a thousand details to address. However, donít loose sight of the big picture. It is critical that the company use this time as an opportunity to vigorously interact with shareholders, analysts, financial press and general media. A detailed communications plan is needed to ensure that all the bases are covered.
From logo and stationary to websites and signage, the two companies must be presented to the investment community in a coordinated fashion. The financial press is the primary interface between the company and investors. All communications should encourage stable, positive market valuation during and after the transaction. Depending upon the size and scope of the merger, it is also important to counsel patience. Making people aware of the complications involved can buy a company a considerable amount of time and forgiveness.
Craft the right message. Formulate a message which clearly and quickly presents the value proposition of the merger. Make sure that it is consistent with market research and past performance. Also, tailor the message to different audiences. What is appropriate for the general media and individual shareholders may not be detailed enough for more analysts and sophisticated investors.
Maintain a proactive investor relations program. It is important to maintain, or even increase, investor relations efforts throughout the merger process. Stay in contact with key investors and sell-side support. Use all the normal channels, including meetings, webcasts, shareholder letters, and corporate websites, to consistently deliver the positive message you have crafted.
Introduce new players. If new members are added to senior management, be sure to introduce them to the investment community as soon as possible. One approach is to hold a media event as soon as possible after the merger is completed to allow the financial community to meet the new management team, hear their vision for the company and ask questions.
Hit the road. Plan a road show to key financial centers where you have major investors and prospects. Make sure you go back to meet with key people who were not in attendance at earlier sessions.
Plan for more marketing. If the merger results in a totally new company, aggressively market the new entity. Corporate branding is a key ingredient to success. If your company changes names, an intense IR/PR effort will be needed to establish your new brand in the public eye. Focus on the strengths of the combined entities with the objective of creating new investor interest while maintaining current shareholder support.
Finally, do not expect the financial community to immediately accept and support the consolidation. Leaving it up to the media to explain why the proposed merger is in the best interest of shareholders is a mistake. It is up to senior management to craft the message and deliver it appropriately.
As previous noted, the majority of mergers fail. By carefully planning and executing a targeted communications plan, your companyís merger or acquisition is much more likely to be the exception, rather than the rule.
Wayne Jenkins is president of IR Specialists, Inc., a boutique financial communications firm focused on helping smallcap companies. His firm provides expertise in investor relations, mergers & acquisitions, and venture capital.