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Why soft issues equal hard currency

Barton: Stakeholders must be briefed and persuaded

We will see more bids disrupted by politicians at the country level, using the media to challenge financial transactions as a vehicle for fighting for their own local agendas or interests

In the mergers and acquisitions game, communications play as important a role to the outcome of a deal as the financial and legal issues.

Planning an effective communication programme – or a charm offensive – before announcing a friendly deal is vital to success. Why is this? And why is communications so important, particularly in cross-border situations?

All stakeholders with a vested interest in a deal can affect the outcome – these can be divided into three categories: financial, political and corporate.

In the financial world these include investors, analysts, rating agencies, lending banks, hedge funds and investment funds; in the political arena stakeholders include governments, politicians, regulators, trade unions, think tanks and non-governmental organisations; and in the corporate world, employees, competitors, suppliers, customers, partners and industry bodies will all take an interest.

At the planning stage of a transaction, all these groups need to be assessed for the impact they could have on a proposed merger or acquisition.

Many of these groups are today better informed – and more vocal – than they were some years ago, because of the massive expansion in media access and internet-based information technology.

Media's role

It is equally important to ask a further important question: why does the media play such an increasingly vital role in determining the outcome of cross-border takeovers, and other types of deals?

You only have to read the headlines of the business media to see how dramatically financial and political journalists can affect the perception of all these important audiences when they write about the value arguments and the potential positives and negatives of M&A deals.

Of course, the danger for foreign bidders everywhere (not just Chinese companies) is that, if they are poorly prepared and poorly understood, they may fail to win the necessary support of stakeholders.

Remember: it is the media’s job to raise questions on behalf of all stakeholders – not just the shareholders.  And it is the buyer’s job to anticipate the questions and deploy the answers.

This situation can be further aggravated by lack of knowledge about the foreign bidder – both on the part of the media, and on the part of other important stakeholders involved in the situation. This can be made worse still by the speed at which damaging media stories can spread, globally, in real time.

The challenge in a transaction is that the media mixes facts, rumours, opinion and news as they report on the complex arguments that arise in deals.

This is why the media has to be managed carefully by those with genuine international cross-border capabilities in transactions. Where do companies usually go wrong? And what can be learned from this?

An analysis of all types of deals – especially M&A deals – generally shows that companies usually focus too much on solving and planning for the "hard" financial, legal and regulatory issues, and not enough on the "soft" cultural, social and political vested issues that all too often derail transactions. 

Delivering results

When contemplating an M&A deal, it is important to use effective communications planning to achieve four main objectives.

Firstly, persuading the critical audiences to support the strategic, financial, political and social benefits of the proposed deal during the transaction. Secondly, securing agreement to the final deal terms, in particular with regard to fair value. Thirdly, assisting in making the integration successful. And finally, creating employee engagement to achieve the strategic benefits after the integration phase.

Effective communications can make a difference between success and failure – in winning support for the deal from all stakeholders, in securing agreement to the financial terms from the shareholders, in making sure the future integration process works well with the management, and in creating sufficient employee engagement after the deal to achieve the business benefits of the acquisition itself.

So why have so many cross-border transactions failed or been stressed by soft issues? How should the softer issues be tackled as part of the planning process for communicating in an M&A situation?

It is vital to understand and map how the target’s culture differs from the bidder in order to organise an approach to managing the differences effectively as an organisation.

Professor Geert Hofstede from The Netherlands pioneered work on mapping culture differences between countries.

His five cultural dimensions are:

1. The Power Distance Index (the level to which inequality is accepted in a society):

2. Individualism (the degree to which society prizes individuality, or its opposite collectivism);

3. Masculinity (the level to which a society represents masculine versus feminine characteristics);

4. Uncertainty Avoidance Index (the level at which the individual’s tolerance for uncertainty plays against the individual’s need for certainty);

5. Long Term Orientation (versus short term orientation).

Obviously these issues play out in cross-border situations, and if not managed these differences can create tremendous problems in achieving the trust and confidence required to successfully implement a merger.

Political considerations

Adding to the complexity of the communications challenge, it is worth observing that in the political dimension that economic patriotism is on the rise in many countries.

Many governments are undergoing leadership transitions, and economic tensions, energy security considerations and climate change are all driving political tensions.

We will see more bids disrupted by politicians at the country level, using the media to challenge financial transactions as a vehicle for fighting for their own local agendas or interests.

The inescapable conclusion for bidders is that they have to carefully analyse the political landscape in the target’s country and to build relationships in this dimension – preferably before making a move to announce their interest in acquiring a target.

Financial markets have been undergoing a period of rapid transformational change, and companies need to take into account the likely strategies of potential financial interventionists in a public M&A situation. It is not just the long term shareholders in the target company that communications are targeting.

There are four communications steps a bidder needs to plan for to deal with the hard and soft issues in a deal: firstly, create a communication plan to position the company; secondly, map the cultural differences between both organisations and create an action plan to bridge these differences; thirdly, prepare a plan to manage communications during the deal itself; and fourthly, create an employee engagement plan to motivate the delivery of the acquisition benefits once the deal has been done.

Starting with the first step, before launching an acquisition it is vital to create and implement a plan to present the company to the critical audiences in the target’s market.

This should define the objectives. This is about articulating the way management wishes its company to be regarded and understood as a brand and as a business.  It is vital to conduct research to critically evaluate how the company is perceived and to ascertain all possible stakeholder concerns.

Having understood the issues, the company needs to agree messaging and develop key communications messages to close the "gaps" between the company’s desired positioning and how it is actually perceived, and then it needs to build evidence for these messages and meet the information needs of the target audiences.

The next step is to develop a tactical communications plan by selecting the communications tools and channels to deliver key messages, to agree action plans and a timeline for communication, and to create a clear implementation plan.

Campaign strategy

Finally, a company needs to execute the communications campaign – bearing in mind the need to be clear, open transparent and consistent, to research the effectiveness of the campaign, and to adjust the plan if necessary.

All of these steps are necessary in order to be effective to ensure a company is fully valued and appreciated on a local, regional or global basis.

The second key step involves mapping the corporate cultural differences between the bidder and the target.  Some of the issues that should be considered include whether the companies are hierarchical or entrepreneurial?

Do they have an open or closed decision-making process?  Are their reward systems based on individual or collective performance?

Are they institutionalised or do they have a forward-looking culture?  Once the mapping is complete, it is necessary to plan actions to bridge the differences – and communications programs will play a vital role in creating a mutual understanding between the two sides.

The third step is to explain with great clarity and good arguments the business benefits of the proposed transaction.  For example, what is the business proposition of the combination?

Key issues to consider include, what is the value proposition?  How good is the management?  What is the strategy?  Where is the growth?  How good is the performance?  What is the competitive position and what are the risks?  How attractive is the investor proposition?  How will value be created?  How will value be shared?

As part of the preparatory work before announcing a deal, companies need to look at the proposed transaction from the perspective of all the stakeholders, in order to create the arguments to win the debate.

It is important to train senior spokespeople to deal with both the media and governments.

Fundemental principles

In terms of handling the media there are three important principles.

Firstly, it is important to create the momentum behind the campaign and to create in the audiences’ mind the certainty that the deal will succeed. Secondly, acquisition timetables can stretch out for months, so the campaign must be paced.

Positive news stories must be carefully managed throughout the timetable, not all the good points should be announced on the first day. Finally, it is wrong to assume media practices are culturally the same around the world – they can be very different from country to country.

A media team, which consists of internal communications people and external communications advisors, needs to be well organised, and they need to know the complex rules of the takeover codes that apply in different jurisdictions plus have a detailed knowledge of the media they will have to brief.

Companies usually spend little time thinking about how to create real employee engagement with the new owners after a transaction.  It is a vital component in achieving the reality of success. 

Companies need to use research as a tool to find out what employees really think rapidly after the acquisition in order to base internal communications on a sound footing.

It is important to create a proactive communications program where the management of the merged entity sells in the objectives of the new company, explains the responsibilities and roles of those who have to deliver the merger benefits, and demonstrates why supporting the new merger is in the company’s and employees’ long term interest.

All of this points to the essential need to prepare the critical audiences, including governments, politicians, regulators, media, trade unions and industry associations, by engaging in a program of communications activities and briefing meetings – a so-called communications “charm offensive”.

The aim is to present the company in the best possible light – ideally, several months before announcing a proposed transaction. Being unknown, or seen as an uncertain quantity is always viewed as a negative. This risk factor can be dramatically reduced if a charm offensive is undertaken before the transaction itself.

A charm offensive is central to taking a long term strategic approach to conditioning a market for a potential acquisition programme.

It clearly offers greater potential for success than an opportunistic move where the critical audiences are not prepared to receive a company because, put simply, they know what it stands for.

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