The Challenges of Mergers and Acquisitions for Corporate Communicators

By: Anonymous

As the market for mergers and acquisitions whirs back into life, so too does the peculiar challenge that it poses for corporate communicators. So how should communication practitioners pave the way for the union of two distinct organisations? Caroline Parry reports.

As 2010 dawned, City analysts optimistically predicted that as the turbulence of the previous year was left behind, renewed confidence among chief executives would kick start merger and acquisitions (M&A) activity, which had slumped during the financial crisis.

Figures released in early June by Thomson Reuters show that while M&A deals in May fell to their lowest level for nine months on the back of the government-debt crisis in Europe, global M&A activity is still ahead of last year’s total by 22%. Some companies are still pursuing this complex, often messy, route to growth.

And there are plenty more deals in the pipeline. A glance at recent headlines takes in BSkyB’s mooted £160 million takeover of Virgin Media Television; Kraft’s increasingly hostile £11.5 billion acquisition of Cadbury; Renault, Nissan and others eyeing up South Korean carmaker Ssangyong; not to mention the soon-to-be unveiled merger of Orange and T-Mobile.

For companies either acquiring, being acquired or going through a merger, the key focus throughout the deal will be on the financial benefits and legal wrangling. But according to corporate communications experts, to ensure the deal’s success, more time and effort has to be invested in the human element of the transaction – the employees.

According to Simon Barrow, chairman of People In Business, a specialist consultancy that advises on employee communications during M&As, between 40% and 80% of deals fail to achieve their objectives because too little homework is done on how the cultures of two different organisations can be brought together.

He believes that, in the first instance, this is because the many advisors that work with companies are paid based on the deal being completed and not on whether it has been a success.

“You are buying clients, people and a brand and, if you lose any of that, you aren’t buying the company you thought you were”.

“You cannot separate the motivations of the senior people in a company and the dealmakers in mergers and acquisitions. The rewards are in the millions of pounds for them. But if you ask a City dealmaker what happened after they had completed their part of the deal, they won’t know,” adds Barrow, who is also the co-author of the recently published book, Employee Communication During Mergers and Acquisitions.

Many companies fall at the first hurdle in terms of developing a successful internal communications strategy by not including their communication teams at the very start of the process. Annette Frem, head of solutions at recruitment marketing and strategic communications consultancy Bernard Hodes Group, says this results in a delayed effect.

“Typically an upcoming deal is only discussed among the few at the highest level in the organisation and, if the responsibility for communication is not represented at board level, there is a risk of always playing catch-up. You then have the leadership excited and running ahead not realising that the rest of the company hasn’t even made it to the starting line.”

She adds that if companies fail to do the “upfront thinking” about the stages of the merger or acquisition process and to map out the emotions people will go through, employees will not necessarily follow the company on its journey. It is key is that management have a clear vision of what the company will look like after the merger and/or acquisition and that they use the communication efforts to keep explaining what that means to the employees.

“If one of the reasons that you were buying was the intellectual capital within the business and you suddenly see this investment walking out the door, it will potentially undermine the reason the deal went ahead,” says Frem “It is the very essence of the deal.”
When facilities management company Incentive FM acquired cleaning company Quality Assured Services (QAS) last year, Incentive’s managing director Jeremy Waud knew it was crucial to have a communications plan ready to begin as soon as the deal was signed.

“You have to run the communications strategy in parallel with the financial and legal side, which tends to be where all of the focus is. You need a documented plan of who you will communicate with and when that will happen. You are buying clients, people and a brand and, if you lose any of that, you aren’t buying the company you thought you were.”

The key to Waud’s strategy was to ensure that all staff were told in person. “The senior staff knew when the deal was signed and they passed this on to the regional managers who told their staff so it went through the management chain. I talked to the senior staff at my company and then took them to lunch and, then I went to QAS as their staff were told and did the same thing.”

Jim Houghton, partner at Results, an M&A consultancy specialising in the marketing communications sector, agrees that the first message has to be personal. “You have got to be able to look staff in the eye and they have to have the ability to ask questions. Staff will always assume the acquirers are in it for the money or that the company will just become a private equity vehicle. They will always assume the worst.”

It is important to have a manager skilled in both formal and informal communications to handle this phase, says Adrian Moorhouse, managing director of Lane4, a consultancy that works with companies going through organisational change. “It is a two way process. There is the temptation with formal communications just to send out the process and not track that it has been received. There have to be forums (fora?) for people to ask questions and give feedback.”

In the early days of the deal, the communications strategy has to be focused on reassuring staff and outlining what it the deal will mean to them personally. Houghton warns that it is essential to present this using positive and upbeat language and to talk about partnerships rather than mergers or acquisitions, to avoid creating an atmosphere of “them and us”.

For some stock-market listed companies, the first announcement may simply inform staff that they cannot tell them anything. But even that is crucial, according to Moorhouse. “You must manage what you can’t say. People would rather be told that you can’t tell them anything than be told nothing.”

Lane4 worked with supermarket chain Safeway during a protracted take over by Morrisons, which made its bid in 2003 but faced a ten-month wait after offers from rival chains forced the Office of Fair Trading to step in. “For ten months Safeway knew it was going to be bought but not by whom so it had to keep running the business. It was important for it to control what it could.

“It focused on telling staff they still had a job to do and that if they put in a great performance there would be a place for them in the new organisation. The staff had to trust in that.”

Rebecca Ivers, the former HR director at Safeway, said of the process: “Throughout the transition phase, we experienced no significant changes in labour turnover. Our business was in line with stock market expectations.

Once staff have been informed, it is important to set a timetable for when announcements about process will be made and to stick to it, says Barrow. “You have to set dates: it is not attractive but you have to be honest and stick to them. Companies should respect announcement to their employees in the same way they would do with a City earnings statement.”

But, even with that in place, the management should continue to use all communications platforms to continue talking to staff. Barrow, who has worked on 27 separate deals including the 2007 merger between travel companies First Choice and Thomson, explains: “That is the period when people are desperate for stuff. Even if it is difficult to say anything because it is price sensitive, there is loads you can do to keep the channels open, such as stories about the other company.”

During the completion phase and leading up to Day One of the new company, the communications strategy must shift listening and feedback to support the new company. “This gathers information and can help to change attitudes,” says Barrow. “The best plaudit is `those people made me think maybe we should have done XYZ’. That’s gold dust.”

Meanwhile, what may seem like insignificant details such as email address, business cards and other remnants of the former brands should be removed so the line is drawn on the past and to show the new vision has been achieved.

Monitoring employee opinions of how the new company is doing once the integration is complete is also vital, say Moorhouse, who also worked on the First Choice and Thomson merger which created TUI Group. He says a key feature of the post-merger plan was tracking staff opinion of how well the company was sticking to the vision it had laid out at the beginning. “It is very important to evaluate that and feed it back to staff.”

With such a high failure rate for mergers and acquisitions, companies involved in such activity need to understand the importance of winning the hearts and minds of staff on both sides of the deal. However, according to Frem, there is no silver bullet.

“The communications plan must have a clear understanding of the merger and or acquisition process, from the scoping and due diligence phase, through the integration phase and beyond; it must divide audiences into different segments, and always keep the channels open. When you are in the midst of it, you need to both manage the message about the change as well as `business as usual’.”

M&A – The Communicators Checklist

Brief the communications team early – the strategy must run in parallel to the financial and legal side of the deal so it can kick-in as soon as the deal is announced.

The first announcement should be private and made in person by the relevant manager so that employees can ask questions and give feedback from the beginning.

Use all platforms to keeping speaking to staff through-out the process. Ambiguity is unsettling and creates a negative atmosphere.

Set out a timetable of when things will happen and stick to it, even if things change and the deadlines pass, let them know.

Management shouldn’t be afraid to be positive about the deal and the reasons for it. Celebrate and embrace the new vision and the outcome of the deal.

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About Amr Badran

An Egyptian Business Consultant and Corporate Trainer since 1997. I've trained on Management, Leadership and Soft Skills to thousands of people from many nationalities, backgrounds and professions in more than 10 countries across the Middle and Far East. Holder of an MBA and a Candidate for Doctorate in Business. Find more about my Management and Personal Skills Courses at AmrBadran.com and feel free contacting me at Amr@AmrBadran.com
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