Clear communication at heart of every successful deal
In negotiating a deal, all parties must balance the need for confidentiality with the need for open and honest communication with employees. Picture: iStock
Mergers and acquisitions (M&As) happen for all sorts of reasons, and while hammering out the best deal for both parties requires mettle in the boardroom, managing the transition on the ground often requires a more delicate touch.
M&A experts say there is an increasing focus on the “soft skills” necessary to ensure any deal is a success, with clear and transparent communication of all aspects of the story of any merger or acquisition to all of the stakeholders involved.
A careful approach to business integration, momentum and talent management will not only help to ensure that the deal goes ahead, they say, but will mean it is viewed as an overall success for everyone involved.
“Every transaction has a post-completion tail on it, be that a liability arising under the warranties, agreeing the release of holdback/escrow consideration, calculation of additional consideration under an earn-out or how a party navigates its non-competes,” explains Colm Manning, an M&A consultant based in William Fry’s Cork office.
To minimise any issues arising as the parties continue to deal with each other post-completion and to smooth over any difficulties that may have arisen in the negotiation process, it is critical that all parties consider the deal a good news story or to have some form of “win”, he says.
“The transactions that go well tend to be the ones where the outcome is considered a success for buyer, the seller and the target. If a party feels hard done by, that could be amplified in the context of further post-completion interaction where a willingness to agitate might more readily come to the fore.”
The success of an M&A transaction does not depend solely on the outcome of the negotiations, agrees Adrian Benson, head of corporate and M&A with law firm Dillon Eustace. He says the completion of the transaction can often just mark the beginning of an often rocky road to integration.
“Most buyers will want to ensure the successful integration of the new business into its existing business activities but planning for integration should begin when the acquisition is first considered,” he says. “Having an integration plan in place is critical and ensures that the views of all parties involved are aligned.” Benson says the success of any M&A transaction will first depend on “open and honest” communication with management and employees. “This is essential to manage the natural concerns that managers and employees will hold about changes to the business following an acquisition,” he explains. “In practice, success is much more likely if senior managers are involved and brought on-side early in the acquisition process.”
Timing is everything, however — he notes that the buyer should balance that need for open and honest communication with employees with the need for confidentiality while the overall sale negotiations are still underway.
Involving a select number of the target's personnel in the transaction process is often unavoidable, agrees Manning, who says the buyer will likely want to meet with and gauge certain target personnel to ensure there is sufficient deal buy-in among the management group, while the seller will often seek to rely on a small number of trusted lieutenants within the target's employee population to help the deal run smoothly, including inputting into the operational, financial, tax and legal diligence exercise. “What is often a delicate negotiation process can be made even trickier if employees begin voicing concerns around job security or terms and conditions, as they naturally will if word gets around that a new owner is coming in.”
The use of “golden handcuffs” to retain key staff can have advantages and disadvantages for both the employer and the employee, Benson adds. “The advantage for employers is the ability for business continuity with loyal staff who are familiar with the day to day running of the business. It may also result in a reduction of staff turnover and can increase the motivation within the workforce.” But offering a select number of employees attractive incentives to the exclusion of others can sometimes result in employee resentment and/or demotivation for those excluded, he notes. Benson also points out that the culture of the target company must be well understood by the potential buyer. Social, material and/or ideological culture may differ considerably between the acquirer and the target company.
“Personalities and cultural differences are frequently cited as a significant reason for the failure of an acquisition,” he notes. “Whilst integration can be challenging, part of the success of an acquisition will depend on the buyer’s ability to understand the target’s culture and the personalities in its management team.”
Practical steps include education of both the buyer’s and the target’s management about each other’s organisation and culture to raise awareness of the differences and likely difficulties in the context of the buyer’s overall aims and objectives for the business. “This can also be important to promote a shared vision amongst all parties involved,” Benson says.
Careful management of external communication is also crucial. Manning points out that in terms of deal publicity, it is essential that the seller and the buyer agree and implement a strategy for announcements to employees, suppliers, customers and the media. “A buyer might need a very specific or time sensitive approach to deal publicity or market announcements, whereas, that might not be a critical concern for a seller that is exiting the business. Any seller inadvertence around announcements, even to a limited number of people, could be very damaging for the target's and the buyer's business.”
And while change is almost inevitable with a merger or acquisition, Benson advises that this change should happen sooner rather than later. “Where changes are to be made following completion, these should be made as early as possible, in particular where this involves imposing new disciplines on management who have been kept on or implementing new systems,” he says. “Change is usually most acceptable in the immediate aftermath when, to a greater or lesser extent, it will be part of everyone’s expectations.”
