Reducing M&A Risk and Creating Value with Strategic Communications

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The financials look solid. You’re under LOI. You’ve followed all the advice and best practices to get your merger or acquisition across the finish line. A bigger, better future is laid out before you.

Unfortunately, statistically speaking, there’s a high probability that things won’t go as planned. According to the Harvard Business Review, between 70 and 90 percent of M&A transactions will fail. Neglecting effective communication before and during transactions can significantly increase the risk of failure. Without clear communication, attrition, distrust, and resistance can grow among customers, employees, and suppliers. This can lead to debilitating operational disruptions, departure of critical employees, operational disruptions, customer defections, or reputational damage in the industry or community. Despite significant investments in financial and legal advice, these are often the outcomes of well-intended deals that overlook strategic communications as a vital part of the due diligence process.

 

How Can You Leverage Communications to Maximize the Odds of a Successful Outcome?

 

An expert communications strategy coupled with extensive financial, operational, and legal planning is crucial in hedging against risks in a transaction. Proactive and strategic communication with internal and external stakeholders is more than just a mass email or letter. It can help identify and mitigate non-financial risks cost-effectively, generate buy-in, and assure customers and employees that the transaction will benefit them.

Effective communication is the primary way to influence the sentiments and actions of the people who will help to drive success. Considerations for cadences, messaging, and channels should be observed to meet specific audience needs — a process that can easily be mishandled without proper planning and expertise. A significant portion of transactions that don’t achieve their goals end up in these positions despite rigorous financial, legal, and operational due diligence because they didn’t prioritize ensuring that the people involved in running the business could do what was needed to be successful. In most transactions, you’re creating uncharted transition, friction, and change for your customers and employees.

No matter the size of your team, strategic communications help to mitigate the disruption and uncertainty caused by change — informing people what’s coming and why, what it means for them, and why things will be better. Customers, suppliers, and employees involved in transactions already feel disempowered by something “happening to them,” so they need to know what’s required for a smooth transition and that you’re listening to their concerns. Proactive, honest, authentic communications can mitigate many of the non-financial risks that plague M&A activity by minimizing the potential negative impact on the internal and external people aspects of the business.

You’re investing significant time and money into your transaction because it’s a valuable source of growth. An investment in strategic communication helps ensure you get the greatest return possible and that you protect the business you’ve already poured time and resources into. When your people don’t know what’s at stake — especially for them — in a transaction, you face an increased risk of negative business outcomes. Effective communication can do more than mitigate risk and ward off negative results. When executed well, it can also offer tangible appreciating benefits in the short- and long-term wake of a transaction.

 

Key Benefits of Effective Communications During The Deal Process

 

Complexity and the impact of change aren’t unique to large enterprises — small and mid-sized businesses are often just as susceptible to the volatility of change that comes with a transaction (and in some cases more so). 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 who treat communication as an afterthought.

So, with all this in mind, what can you expect to get out of your investment in more strategic communications for your next deal?

 

Mitigating Non-Financial Risk

A solid communications strategy can help you identify and mitigate unforeseen reputational and people ‘red flags’ before your deal closes. Your bankers and lawyers likely have a rigorous process to identify legal and financial risks, so 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’re looking to buy. Similarly, why wouldn’t you look at all aspects of a deal before investing?

 

Accelerating the Transition

If you’ve done your homework on screening and due diligence, you likely have a strong rationale for pursuing your transaction and a plan for executing it successfully. Effective communication and stakeholder engagement can serve as fuel in accelerating the timeline for your deal to achieve your desired results — and to ease the disruption for customers and employees. Think of it as “oiling the machine” for better sales, operations, and positive business results.

 

Differentiating to Gain a Competitive Advantage:

Few business owners and private equity professionals are conscious of the power of communications to identify and mitigate risks — and to catalyze the rationale of their deals. Even fewer pull these levers to create upside. Investing in communications expertise can help you get that extra competitive boost to hit the post-closing ground running and fend off potential reputational attacks from competitors.

 

Building A Solid Foundation for Sustained Success

One of the biggest complaints from employees and customers impacted by deals is a 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 helps you to understand questions and concerns from employees and customers to be better positioned to respond to them quickly. It also sets expectations about the comms cadence and channels (email, socials, etc). they can expect in the future. This builds trust and confidence that can reduce employee turnover and maintain or even improve key customer satisfaction.

 

Conclusion

 

How you communicate before and during the deal will set the tone for what life looks like for you, your business, and 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 profitability. Leverage an expert communication strategy proactively to positively impact the integration of the acquired business — and ultimately drive more positive business results for your post-closing organization.

Picture of Written by B.J. Talley

Written by B.J. Talley

B.J. Talley is the founder and President of Gladius Communications, a strategic partner that harnesses tailored internal and external communications for more successful M&A integrations. Our team helps credibly engage stakeholders, alleviate uncertainty and mitigate non-financial risks in M&A transactions."

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DueDilio is a marketplace and advisory service for assembling an M&A deal team for small business transactions. Our large and growing network of highly vetted independent professionals and boutique firms specialize in M&A advisory, due diligence, and post-acquisition value creation.

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