Navigating M&A through Communication

Introduction:

2023 so far has been patchy and sporadic to say the least. We have witnessed rising inflation and the uncertainty over whether higher interest rates will persist which has created a challenging prospect between buyer and seller valuations within the M&A space- seen from my lens as a consultant².

Juggling acts have been performed off the backdrop of inflationary pressures impacting the availability of debt and the rising cost of debt capital. With new and existing shareholder (via private placements) cautious on new issues and the FTSE in the state of flux, coupled with dilution and return fears, all this impacts on the expected return of a new M&A venture. VC/ PE investors’ who focus on returns will often use a greater debt to equity (leverage) ratio in their acquisition structures. To add to the wow’s, there is then the ongoing battle between buyer and seller on the price they are prepared to accept.

For obvious reasons, VC and PE firms are increasingly seeking to invest in high growth, disruptive businesses that brings innovative technology to market but also companies looking to access new forms of technology to transform their own businesses. The move to technology-enabled services and recurring SAAS or subscription models over more traditional revenue models is attractive for businesses looking to stay ahead of competitors and create repeating revenue streams.

As a noteworthy observation, AI technology during 2023 has really taken off in leaps and bounds, where I have heard of some great SAAS start-ups who have financed their pre-stage by themselves. VCs who work with early-stage businesses who enter in at this stage often tend to invest in local businesses to them. Series A, first funding round starts getting interesting, where these are companies who have pipeline order book and are slowly starting to generate revenue, but need to finalise their product or service, pay salaries, or conduct market research for proof of concept and even regulatory approval. Series B, second round funding, on the other hand focuses on profit-making companies that want to scale up and expand, increase market share in-country, or create complementary or other product/ service ranges. Series C stage is usually the last, which comes, when a company with huge market potential aspire to gain greater market share (overseas), develop further products/ services, in readiness for an exit/ MBO/ LBO, SPAC or an IPO².

Roadmap to Communicating M&A

From the planning stages to the development and execution strategy and post-merger integration, the human side is paramount to achieving success.

Therefore, my objective in this article is to provide some insights gained from lessons learned whilst I’ve been on the M&A journey. Although, M&A is a financial transaction; it is also a change and transformation opportunity. Stepping back, I was reflecting on a transaction I was involved in and thinking about the why, what and how it was done, versus how and what should have been really done - with bringing people along the journey, being the missing piece (or why). Alas, very often its only client's key stakeholders who get involved and post-transaction, people are often left wondering why they were not involved or informed earlier and are now left to pick up the pieces to move it forward. Sound familiar?

I have suggested many times to clients for an after-action review, but never have I ever heard (the client) say let’s talk about the way and how it was done and how it specifically made the company staff feel. Strange, but true!

Therefore, in this article, I am going to focus on the human strategy side of things- communication!

“Communication” is to share or to make commonly known the transmission of information².

As a lean-agile advocate who practises, devises and uses field-tested methodologies for clients, my personal approach to this communication conundrum would be use the 5W and golden circle theory¹.

Read on and I’ll elaborate….

Planning the Merger- Why?

80% planning, 20% execution – my observation, broadly applied, utilising Vilfredo Pareto’s rule².

Mergers represent synergises and opportunities that require a strategy and precise execution. Planning will give rise to the ultimate success or failure of the entire transaction.

In my world of professional finance consulting services, reputation and trust are important, which is why pre-merger planning to help develop a roadmap and showing a path the client needs to swim towards to achieve its goals and aspirations is key (via communicating of course).

This pillar/ key building block helps to ensure there is alignment, keeps disruptions to a minimum, with the chance to maximise value.

What to communicate?

1. Identify and engage key stakeholders from both buy and sell side, involving leaders, partners, heads, to form a cross-functional M&A team that brings together diverse perspectives and skill sets, not just finance!

2. Establish a set of communication goals aligned with the broader merger strategy, whilst considering both internal and external audiences;

3. Develop a timeline that factors in due diligence, regulatory approvals and integration phases, ensuring its real and adaptable to potential challenges and changes;

4. Consider a broader spectrum of stakeholders, such as regulatory bodies, industry associations, trade unions and shareholders, tailoring communication strategy accordingly; and

5. Evaluate current communication strategies, both internal and external, to identify SWO (strengthens, weaknesses and opportunities) for improvement.

The Howᵌ?

1. Utilise lean-agile tools for tracking progress, milestones and team collaboration;

2. Craft an effective communication plan; and

3. Enlist external financial experts to navigate complex financial aspects; and

4. Engage legal counsel for regulatory.

Strategy Development- Why?

The journey from planning to post-merger integration requires a robust communication strategy- a critical component.

Communication strategy development plays a vital role in M&A. It serves as a compass (North Star) guiding the company through the complexities of the transition, ensuring all stakeholders are well-informed, engaged and aligned. In an era where information flows rapidly and where public perception can significantly influence outcomes, a well-crafted communication strategy safeguards reputation and strengthens the acquirer's position.

What to communicate?

1. Develop a clear and compelling key message, articulating the purpose and benefits of the merger. The message should resonate with both internal and external audiences, instilling confidence and clarity- why, what, when and how;

2. Determine the most effective communication channel for disseminating the message, using a both traditional and digital platforms to ensure accessibility to all stakeholders;

3. Create a suite of communication materials, like press releases, internal memos, website updates, social media content, tailoring these materials to different audiences and phases of the M&A; and

4. Invest in training teams to effectively deliver key messages, handle inquiries, manage potential crises, ensuring their proficiency in the subtleties of public and investor relations.

The Howᵌ?

1. Collaborate with media relations to navigate press inquiries and maintain a positive public image;

2. Utilise social media management platforms for posts, monitoring and responding; and

3. Deploy tools to streamline information sharing within the company.

Execution and Implementation- Why?

Effective execution and implementation serve as a catalyst for driving success- where strategies take on a tangible form and visions start to evolve into reality. These phases matter significantly because they constitute the acid test of planning endeavours, as the M&A impact begins to vibrate across the company, where promises made during pre-merger planning and communication strategy development come to fruition to assist in building trust and credibility.

What to communicate?

1. Use a well-crafted communication plan, ensuring all stakeholders are kept informed of the M&A progress and maintain a consistent flow of updates;

2. Tailor messages to resonate with various audience segments, recognising that clients, talent and regulators may have unique concerns and interests that require specific attention;

3. Continuously monitor feedback and be responsive to questions and concerns, demonstrating a commitment to transparency;

4. Maintain a consistent stream of updates, especially during critical integration milestones, keeping stakeholders engaged and informed about progress and changes; and

5. Regularly review the effectiveness of the communication strategy and adjust it as necessary, embracing adaptability to remain lean and agile.

The Howᵌ?

1. Track the distribution of communication material by channels;

2. Gauge satisfaction and gather insights for refinement; and

3. Instil protocols for addressing unexpected challenges or crises and ensure your team is prepared.

Integration- Why?

The phase of post-merger integration is a complicated process of co-ordinating and adjusting two entities into an organised cohesive force, where the vision of the M&A transaction turns into a reality. The significance of post-merger integration should not be underestimated, as it represents the apogee of strategic planning and effort to shift from the sum of individual parts into something bigger. Effective integration ensures accountability and commitment to get the job done of embedding what the company has purchased.

What to communicate:

1. Create an integration communications plan outlining how the merged/ integrated entity’s values, mission and vision will be communicated internally and externally;

2. The acquiree may have distinct cultures, that requires developing strategies for harmonising cultures to create a unified and engaged workforce;

3. Install support mechanisms to transition both acquiror and acquiree, ensuring that teams have the resources/ support they need;

4. Track retention and employee satisfaction post-merger; and

5. Continuously assess the integration strategy.

The Howᵌ:

1. Engage experts in cultural integration to facilitate a smooth blending of organisational cultures;

2. Use lean-agile tools to gauge on feedback and data collated, whilst embracing decision support analytics techniques to drive forward FP&A.

Companies often refer to a 100-day integration plan, involving but not limited to getting people on the same systems and processes and using the same kind of metrics of the acquirer to run their business. It is good to have a 100- day blueprint when acquiring a business, but flexibility around that blueprint, depending on things like the culture and maturity of the business too.

On an ending note, making sure that people feel like they are part of something improved than they were previously, are excited to be a part of something new and feel like they have a role to play is vital to the M&A success using communication- as a precious tool.

Dee Singh Kothari is a senior partner in Kothari Partners

¹ Why, What and How analysis is a tool used to analyse how much importance an organisation has given to these factors. The Why is then specifically looked at in terms of the 5 Whys (or 5 Why, 5W) a brainstorming lean-agile technique, developed by Sakichi Toyoda- where repeatedly asking the question “why?” until the root cause is determined.

² Ideas expressed in this article are solely of the authors. The author nor Kothari Partner’s accept any liability for the incorrect application of these ideas either used by companies, employees or other individuals alike. Contact us on how we can help with the now.

ᵌ At Kothari Partners, we have worked with various UK and overseas listed and VC/ PE backed clients across 21 various industries to consider how their business and finance services can bring them both cost reductions and performance improvement.

Our approach is to help our clients understand their current situation, identify the value and decide on the scope, vision and set of strategies for what they could achieve for their business. We help plan their implementation and support them and deliver the solution/ change needed, so it is properly and permanently embedded in their organisation.

We aim to help past and future clients by delivering high-quality work to their organisation, generate real efficiencies and free up time to support better business decisions.

For a confidential discussion please free to contact us, via our corporate website: https://www.KothariPartners.com