Tying Knots

When organic growth just won’t do, M&A to the rescue.

No, this isn’t an ancient Chinese proverb, it’s a common growth strategy for businesses in competitive and/or low-growth industries.  Indeed, sometimes the fastest path to growth is via acquisition and it seems we’re seeing more of it. Global M&A is off to one of its strongest starts ever with transactions totaling $1.2 trillion in value in first quarter 2018, building off a similarly strong fourth quarter 2017.

Like marriages, acquisitions don’t always work out.  But those that do are those where the buying and target companies know themselves and each has something to offer the other.  In other words, success rates improve when buyers have a thematic M&A approach that aligns around specific objectives and the business competencies of both parties; the buyer and target validate strategic visions throughout the due diligence process (not just during the deal stage); and buyer and target continuously develop, revise and refine the integration plan and objectives to optimize synergies.

The deal-making process is exciting, and it can sometimes be easy for those involved to get ahead of themselves.  So, while Investor Relations isn’t usually on the frontlines of the merger process, it needs to be involved to represent the investor perspective and serve as a patient, long-term focused voice during the knot‑tying process.

Investor Relations needs to be cognizant of disclosure limitations; align internal and external messaging; and help ensure expectations are realistic.  To that end, Investor Relations should ask some knotty questions including:

QuestionWhat don’t we know? What won’t be – or wasn’t – revealed during the due diligence process? For example, is access to customer data or customer contracts limited due to confidentiality agreements or regulatory or anti-trust concerns.

DollarWhat’s the real total cost?  Its more than just the purchase price. There’s also a cost to the equity or debt used to finance the acquisition.  Other costs may include severance packages, legal and banker fees, target company pension obligations and equity compensation.   All these can affect total costs and the acquisition’s expected return.

safeHow do we protect our own information?  Often confidentiality agreements are one-sided:  buyer agrees to keep target’s information confidential but not the reverse.  Yet, throughout the process the buyer may share confidential information with target that could put buyer at risk if the deal falls through or someone else swoops in and acquires the target.

Slash signWhat can’t we do?  Are there any restrictions between deal and close?  What about after close?  Are you limited from pursuing other acquisitions, raising additional debt, paying dividends, repurchasing stock or taking other strategic actions?

No wonder the phrase “less is more” is so relevant during M&A.  These questions raise important considerations in how to talk about a merger.  Yet, you can almost never say nothing, so a careful calibration of what to say and when is needed throughout the process.

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

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