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Strategic Communications in M&A Transactions: A Catalyst for Value Creation & Risk Reduction

The financials look solid. Legal has everything buttoned up. A bigger, better future is laid out before you. You’ve followed every time-tested method to get your merger, acquisition or spinoff across the finish line.

Unfortunately, statistically speaking, you are more likely than not to fall short of expectations. According to the Harvard Business Review, over 70 percent of corporate M&A transactions will fail to reach their stated operational and/or financial goals.

The Case for An Often-Overlooked Enabler

There are many factors that contribute to the success of corporate transactions. While financial and operational considerations should be at the top of the list, effective communications and change management before, during, and after closing the deal are oft-overlooked factors that can be significant catalysts of success if done well – and challenging obstacles if executed poorly (or not at all). Proactive and strategic communication can absolutely help identify and mitigate non-financial risks in a cost-effective manner while simultaneously amplifying the positive aspects of a deal’s operations, people, and culture.

Communication is crucial to a successful transaction because it’s the primary way to influence the sentiment and actions of the internal and external stakeholders you need who will help to drive success. A significant portion of the 70 percent of transactions that don’t achieve their goals end up in that position despite rigorous financial, legal, and operational due diligence because they did not prioritize ensuring that the people involved in producing the goods, running the business, and taking care of customers could (or would) do what was needed to be successful. In most transactions, you’re fracturing culture and creating transition, friction, and change. We can’t forget that even in smooth transactions, all these things can cause stress, uncertainty, and doubt in the people involved.

Effective internal communications are crucial to mitigate the disruption and uncertainty caused by change – informing your people what’s coming and why, what it means for them, and why things will be better. Employees involved in corporate transactions already feel disempowered by something “happening to them,” so they need to know what’s required of them and that you’re listening to their concerns. Proactive, honest, authentic communications can mitigate many of the non-financial risks that plague M&A simply by mitigating the potential negative impact on the people who are either being brought in, spun off, or even staying exactly where they are. When communications are truly proactive, transparent, and effective, the people involved can start seeing the benefits beyond just understanding the tumult heading their way.

On the whole, effective communication is often a relatively modest investment that can provide significant savings and opportunities after a transaction closes. You’re investing significant time and money into your corporate development transactions because they’re an important source of growth. Strategic communication helps ensure you’re getting the greatest return possible. When your people don’t know what’s at stake – especially for them – in a transaction, you face an increased risk of negative outcomes, including the departure of key employees, operational disruptions, and reputational damage. But effective communication isn’t just about mitigating risk or warding off negative results. When executed well, it can also offer tangible accretive benefits in the short- and long-term wake of a transaction.

The Key Benefits of Effective Communications During the Deal Process

An effective communications strategy – whether it’s internal or external messaging to key stakeholders – can help you reach this goal by ensuring your people are aligned around the same goals as much as possible. Over the last 20 years, I’ve been in just about every position (buyer, seller, spinner, “spin-ee,” and advisor) across dozens and dozens of corporate transactions. And the truth is that I’ve never seen a seamless one. If you have – well, I’d love to hear about it! Change is disruptive, and there’s no way to eliminate that entirely. However, deals that employ proactive and effective communication from the start almost always experience fewer people-related setbacks and get off to a stronger start sooner than those with cursory or non-existent communication capabilities.

So, let’s assume you accept that transactions that incorporate strategic communications into the deal planning, execution, and implementation processes are generally more successful than those that do not. We all work within budgets, so if you invest in communications for your next transaction, it’s reasonable for you to expect a solid return on that investment. That raises the question: What benefits might you expect to see?

Every deal has a multitude of variables that ensure no two are exactly alike, but if you’re looking for the business case to invest in communications for your next transaction, here are a few considerations:

●       Mitigating Non-Financial Risk:

A sound communications strategy can help you identify and mitigate reputational, people, and cultural red flags before the deal closes. Chances are your bankers and lawyers have a rigorous process to identify legal and financial risks before you sign on the dotted line. It makes sense that you would have change/people/reputational experts do the same thing for those aspects of the deal. By involving communication experts in due diligence, you’ll be able to identify risks in these oft-overlooked but very impactful areas and decide how to mitigate them or price them into the terms of the final deal before you close. You wouldn’t hire a home inspector who only looks at certain aspects of a house you were about to buy. Why wouldn’t you look at all aspects of a deal before making that big of an investment?

●       Accelerating the Transition:

If you’ve done your homework on screening and due diligence, you likely have a strong rationale for pursuing the transaction and a high potential for executing it successfully. Effective communication and stakeholder engagement can serve as catalysts in accelerating the timeline for the deal to achieve your desired results. When you make a concerted effort to ease the transition and reduce disruption and uncertainty for your employees and customers, you’re “oiling the machine” for sales, operations, and – ultimately – business results.

●       Differentiating to Gain a Competitive Advantage:

Few corporate development professionals are conscious of the power of communications to identify and mitigate risks – and to serve as a catalyst for the rationale of their deals. Even fewer CorpDev teams pull these levers to create upside. Even a modest investment in communications expertise can help your team get that extra competitive boost to beat the odds and complete transactions that deliver better results on shorter timelines.

●       Building A Solid Foundation for Sustained Success:

You only get one chance to make a first impression. One of the biggest complaints from employees and customers impacted by deals is the lack of transparency and information before, during, and after the transaction. Building a strategic comms plan before a deal happens and then executing it during and afterward allows you to better hear employee and customer questions and concerns and be better positioned to address them quickly. It also sets expectations about the comms cadence and channels they can expect in the future. This shores up trust and confidence that can reduce employee attrition and maintain or improve customer satisfaction.

How you communicate before and during the deal will set the tone for what life looks like for your employees and customers after closing. If you miss or misplay that opportunity, it can have long-term negative impacts on employee and customer retention and productivity. However, if you leverage an expert communication strategy proactively, you can positively impact how well the acquired business integrates into your existing structure – and ultimately drive more positive business results for your post-closing organization.

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