Successfully Navigating a Complex M&A Environment
Today’s uncertain global M&A is proving more complex and difficult for companies to navigate. Market, macroeconomic and geopolitical volatility are impacting activity levels, leading to a slowdown in global deals over the course of 2022 and we have seen the new year start with sentiment in a very different place to the post-pandemic rebound we saw in most markets globally in 2021.
While many potential M&A deals face challenges simply getting to the starting line, let alone successfully completing, today’s complex environment places ever greater emphasis on a clear communications strategy across all phases of a transaction to mitigate risk, maximize value and ensure success. So, what are the key communications considerations in today’s markets?
Prepare for far greater scrutiny from media and other stakeholders
Recent market and macroeconomic volatility has led to the emergence of new groups perceived to be ‘winners’ and ‘losers’. Private Equity, Sovereign Wealth Funds and corporates benefitting from the post-COVID economic re-ordering now find themselves in the driving seat and leading the M&A charge. However, their actions could be seen as opportunistic by some stakeholders and as bidders they are likely to face far greater scrutiny than before. Making sure the bidder is prepared for questions on their own reputation and track record on issues as diverse as ESG, tax and executive remuneration and has a clear purpose and narrative as a business are increasingly important.
Clearly outline the rationale for the deal
To ensure a successful transaction that delivers over the longer-term it is imperative for a convincing rationale is established for the deal that resonates with all major stakeholders. What are the goals and how will an M&A deal impact the company’s business model and corporate positioning? Companies must demonstrate both long-term growth and short-term growth potential.
Prioritize employee communications
Companies need to build employee engagement into their communications plans from the outset and not just see this as something to be dealt with in the post-merger phase. How employees respond to a transaction will have an impact on wider stakeholders and will help ensure the deal succeeds over the long-term. Moreover, many businesses are presently facing more challenging labor market conditions – ranging from increased difficulties of attracting and retaining talent, to employees experiencing inflation-related cost of living issues. M&A transactions in such an environment are going to need effective and sensitive employee communications to succeed.
Mitigate political and regulatory risk
With many jurisdictions having introduced or expanded national security screening mechanisms for transactions, political and regulatory risk has increased markedly for significant deals. CIFIUS in the U.S, Außenwirtschaftsverordnung in Germany and the National Security and Investment Act in the UK are just three of several new or expanded clearance regimes that have extended scrutiny and increased uncertainty. Add to this tougher merger control enforcement by competition regulators in many markets, in particular the U.S., U.K., and EU and it is clear that a company’s communications strategy needs to be closely aligned with and supportive of its overall legal and economic case.
Be prepared for shareholder scrutiny and shareholder activist action
Depressed valuations in many equity markets may offer compelling opportunities for bidders, but they also increase the risk of counterbids or activity from activist shareholders looking to disrupt the process. Activist shareholders may use low valuations to increase or extend their positions and may also seek to disrupt publicly announced transactions or agitate for an M&A transaction in this environment. As activists become increasingly involved in transaction events, management boards, investors relations and communications departments need to ensure activist strategies are anticipated in their transaction communications plans.
Make use of new ways of working and communicating
Finally, we should not lose sight of trends accelerated by COVID-19 to the ways we all work and communicate which can enhance and streamline the M&A communications process. From virtual deal teams, to making use of digital communications formats such as microsites and video to engage with employees and, where regulations permit, wider stakeholders, companies have more tools at their disposal and creative ways of using these should be part of any plan.
For more information about our leading team of global M&A experts and how we can help you successfully navigate today’s complex transaction environment please contact one of our global leaders below.