By Rochelle Walk (bio), Manager, Tampa AEGIS Law
Some mergers, like JP Morgan Chase or ExxonMobil, are so successful that we can’t remember a time when the companies were distinct. Unfortunately, however, those mergers are the exception, not the rule. Typically, 70% to 90% of all M&A transactions fail. Why?
Although there are many contributing factors to a company’s demise after an M&A deal, most come down to the failure of the parties involved to adhere to Aegis Law’s M&A mantra – clear communication is the golden key to unlocking a successful M&A deal.
The Importance of Communication
A smart communication strategy ensures business continuity, conveys the combined organization’s shared vision, and minimizes employee anxiety throughout the lifecycle of the M&A transaction. That’s why it’s vital that companies start early and get the messaging right at every stage of an M&A deal. Here’s how:
During the initial stages of any planned merger, discretion is critical. Companies should limit the number of people who know about the merger to avoid the misinformation that often comes from communication leaks.
At this stage, it’s also vital that all communications about the transaction are accurate and purpose-driven. Key stakeholders need to know that the rationale for the proposed deal makes sense in the marketplace if the agreement is to survive critique.
The announcement of a proposed M&A transaction is the first official opportunity for the merging companies to state their vision, explain their strategy, and get industry buy-in. So if that first announcement is not handled appropriately, the results can be extremely disappointing.
In 2011, for example, HP acquired Autonomy [https://www.cbinsights.com/research/merger-acquisition-corporate-fails/], a European data analytics company, in an M&A deal worth $11.1B. Despite high hopes, the merger was anything but successful. HP failed to adequately communicate to industry experts how Autonomy fit into its corporate strategy. Then it was later discovered that Autonomy outright lied in its communications about the actual value of the company. Ultimately, nothing ever came of the merger, and HP had to sell off its Autonomy assets at a significant loss.
Effective communication does not stop once the companies have announced the proposed merger. Regular, on-going communication during the pre-closing period is essential to limiting the potential damage that can often come in the form of the loss of talent.
In 2005, for example, Sprint and Nextel [https://www.cbinsights.com/research/merger-acquisition-corporate-fails/] announced plans to merge in a transaction worth 35B dollars. The deal was thought to be a “merger of equals” because Nextel was more of a business brand, and Sprint focused on consumer communications. Nevertheless, the deal fell through. Nextel executives started leaving the company almost immediately after the merger, and the two companies were never able to integrate its networks.
During the planning stages of any acquisition, the organizations involved must take care to develop a set of core messages and in-depth Q&As that address employee concerns and ensure the retention of talent. Although companies run the risk of revealing too much information at this stage, saying nothing or “going dark” before closing can almost certainly signal the death of a deal.
Day 1 and Beyond
Although closing is a time to celebrate the coming together of two organizations, it’s not the time to halt communication about the newly formed company to employees, stakeholders, customers, and vendors. Clear communication is the golden key to unlocking a successful M&A deal is a mantra because companies must practice it regularly to forge a lasting bond between companies.
Critical changes to business practices, policies, and procedures occur after closing. So it is essential that companies frequently discuss these changes with everyone involved if they want to be successful in the long run.
Want to stop your deal from becoming yet another failed M&A statistic? We can help. Contact AEGIS Law and let us assist you with clearly communicating your vision at every stage of the deal. Send us a message or email Rochelle Walk at email@example.com.