This article was originally published on Finsbury.com
Doing M&A deals in foreign countries can be tricky. Here are the six steps to follow to master foreign territory.
1. Globalize your leak strategy
Every cross-border deal requires a robust, global leak strategy prepared well in advance, including media statements and regulatory responses.
This must account for the various disclosure thresholds in all relevant markets, to determine under which circumstances a company may be compelled to issue statements in response to press speculation in each market. Such thresholds can differ markedly between markets.
For example, companies in the US are used to being able to stick to a “no comment” line for as long as they choose to, whereas in Europe regulators can force companies to issue a public response in reaction to press speculation alone.
Therefore in a cross-border deal, a US company can find itself forced out into the open long before it is required by US law to issue a statement. Companies that don’t prepare for this scenario in advance can find themselves on the defensive very quickly.
2. Don’t ignore the politics
The old adage is that ‘a week is a long time in politics’ but with cross-border M&A months of diligent preparation can unravel in minutes with an ill-thought-through statement or approach.
Therefore, unless a communications strategy addresses the current political landscape, a company may find itself on the back foot after announcing a deal, criticised by key stakeholders and struggling to regain the initiative and momentum.
Rising protectionist rhetoric across the globe reinforces the need for potential acquirers to pay careful attention to sensitivities regarding ‘national champions’. The best approach is a proactive one – get your message to the key political stakeholders before your critics do, and ensure that any promises you make are specific and credible. SoftBank employed this approach effectively when it announced its acquisition of UK tech champion ARM Holdings in 2016.
By making legal commitments to keep ARM’s headquarters in Cambridge and at least double the UK workforce from 1,750 in the next five years, SoftBank was able to dampen political and media criticism about selling the UK tech sector’s ‘crown jewels’.
As always, companies must balance the need to proactively tell their story with the increased leak risk. All engagement with politicians also needs to be in line with local disclosure obligations.
3. Keep employees onside
Employees are a critical stakeholder group in any transaction situation, but particularly in a cross-border deal. Not only will they ultimately be the ones responsible for delivering on any promises made at the time of the announcement, they can also act as an acquirer’s biggest advocate, or detractor, between announcement and closing.
In some countries, employee engagement is a legal obligation, not a choice. For example, in Germany half of the Supervisory Board of large companies represents workers and unions, not shareholders.
While transactions could theoretically be done without the consent of the workers’ representatives on the board (via the chairman’s casting vote), this route would be extremely unusual. Therefore, effective employee engagement is essentially a prerequisite for any successful transaction. This can be particularly challenging in a cross-border deal, as employees will likely fear the loss of co-determination that often comes with a foreign takeover.
The bottom line is that getting employees onside is a critical component of getting a deal done, and to making it successful over the long term. Again, vague, lofty promises don’t work, and companies need to be sure that any promises made to employees can be kept.
4. Tailor your media strategy
Every deal is different, and so each one requires a tailored media strategy that plays to the acquirer’s strengths.
If your CEO is a natural with the media and you have a positive story to tell, broadcast can be a very effective way to deliver your key messages on day one. With more nuanced situations, an interview with a well-informed sector reporter at a top-tier publication can offer a more controlled setting.
Local media can also be very influential and should not be ignored, particularly in contentious situations. This is partly because local news can become national and international news very quickly.
More importantly, local media matters because key stakeholders pay attention to it. Politicians watch the local news and read local papers to keep abreast of what’s going on in their constituencies. For employees, the local paper is often their primary source of news.
Whatever the channel, CEOs and other company spokespeople need to be careful not to fall foul of relevant stock exchange rules around M&A situations. For example, in the UK the Takeover Panel forbids any new information being released to the market that can’t be backed up with written proof. An offhand comment such as “many shareholders are supportive of this deal” can lead to a request for proof.
5. Look in the mirror
Companies need to have a crystal clear view of their own reputation in a target market. Do they have a good track record on growth, integration and developing a workforce or are they seen as a rapacious corporate raider hovering over a struggling business?
A foreign acquirer also needs to be aware of its own track record in the target market, as any previous mistakes or false promises will be seized upon by deal opponents.
Based on this self-assessment, foreign acquirers must determine the need to introduce themselves to the target market – for example, by writing an op-ed or giving an interview to a high-profile publication that will be seen by key stakeholders, including local media and lawmakers, or by self-publishing on channels like LinkedIn and their corporate website.
6. Think locally
Many acquirers have been tripped up in their pursuit of foreign targets by failing to show appropriate respect for the customs and conventions of the target market. Communications must be locally relevant to persuade local audiences of a transaction’s merits.
In some markets, politicians will expect to be pre-briefed on a transaction that may affect their local constituency, whereas in other markets there is no such expectation. Media conventions also vary between markets. In Europe, companies often hold big press conferences to announce a deal, something that is certainly not the norm in the US.
Failing to hold a press conference in Europe can be seen as a sign that an acquirer has something to hide. An announcement plan should also try to accommodate local media and their deadlines, within the boundaries of regular reporting timeframes in different jurisdictions.
A cross-border deal communications strategy must also account for local ‘red flags’. For example, ‘synergies’ is an increasingly politically-sensitive term in the US given President Donald Trump’s “America First” jobs focus. Similarly, the term ‘merger of equals’ still has lingering negative connotations in Germany from the failed merger between Daimler-Benz and US rival Chrysler.
For further insight and information, contact our M&A advisers:
Europe and Middle East: faeth.birch@finsbury.com; pkebbel@heringschuppener.com; simon.moyse@finsbury.com
Americas: kal.goldberg@finsbury.com; winnie.lerner@finsbury.com
Asia: ben.richardson@finsbury.com
To learn more about our Capital Markets practice, click here.