The Beat Goes On …

The beat goes on … the drums keep pounding rhythms to the brain …
Sonny & Cher, 1967

Yes, the M&A beat goes on.  Worldwide M&A activity totaled $4 trillion in 2018, up 19% versus 2017.  And, with more than three-quarters of corporate and private equity executives anticipating the pace of M&A to accelerate in 2019[i], the M&A drums keep pounding rhythms to the brain.

M&A is exciting.  Almost instantly it seems the company becomes bigger with access to new customers, products, brands, services and markets.  Increased industry dominance can produce opportunities to gain scale, leverage efficiencies and create synergies.  No wonder many bankers, reporters and investors seem to egg-on the process.

However, too often M&A deals don’t reach their full potential.  Sometimes merger objectives aren’t well-thought out, are too narrow in focus or don’t anticipate industry/market changes.  Sometimes integration efforts fall short or cultures don’t mesh.  Sometimes underlying business issues aren’t identified until after close.  So not surprisingly, not everyone is thrilled with M&A.

When M&A is successful, its typically because the acquiring/surviving company recognizes the beat goes on.  In other words, both the buyer and target companies know themselves and bring business competencies that complement and expand upon each other’s capabilities and opportunities. Further, throughout the diligence process (not just during the deal stage), the strategic vision for the union is continuously validated.  Importantly, there’s an ongoing effort to develop, refine and execute an integration plan that balances driving organic growth with achieving cost-cutting synergies.

Given the robust interest in M&A, investors will inevitably ask about M&A strategy. Investor Relations should be prepared to respond while keeping the sound of the beating drums to a dull roar.  Often this means repeatably articulating the company’s broader growth strategy and how M&A may (or may not) fit into that.

To that end, companies should have a M&A framework to provide organizational focus and discipline.  Such a framework should be grounded in strategy and consider questions like:  What are the risks and opportunities of growth via acquisition versus organic growth? What are our strengths and weaknesses and how does an acquisition/divesture address such? What options are most viable in view of our current situation and desired strategic direction?

When the hypothetical becomes real and a deal is announced, Investor Relations should be cognizant of disclosure limitations and work to ensure internal and external messages are aligned.  At best, everything is preliminary until close so when it comes to setting expectations “less is more” should be your mantra.  This is particularly important because not everything gets revealed during the due diligence process and confidentiality agreements may limit what is discoverable until after close.

During this time, think about what your investors will most want to know, what metrics and milestones will be most important for measuring integration progress and merger success, how you will breakout the reporting of same and how your guidance practices will or should change.  Inasmuch as deal structure or size may impact the company’s financial flexibility and go-forward growth strategy, consider how your investor base may change.  For the next 1 – 2 years, your answers to these questions will serve as a roadmap for managing this change because, of course, the beat goes on.

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

[i] Deloitte, The state of the deal – M&A trends 2019