Sustaining share price through M&A

No two organisations enter into an M&A agreement with the intention of losing value or diminishing their share value. A primary aim of M&A is to produce a more profitable enterprise which will result in a buoyant share value.

However, there is a tendency for the share price of the acquiring business to drop on deal announcement, especially if the acquirer has paid a premium and fails to convince the market of their ability to more than recover this through integration and improvements post-close. Similarly, the share price of the target firm may rise as the market perceives potential gains it may make from association with a larger entity.

The acquirer needs to take a strategic view and look at the integration period in the longer term. The focus on shareholders and share value should begin before the deal is done and continue through the entire integration process, which could take up to two years or more.

Prepare, prepare, prepare

It is important to present the deal to the markets and shareholders in a positive light. This doesn’t mean spinning the markets a line, or over-selling ambitions. Information needs to be delivered in the right way, requiring the skills of investor relations specialists, who can talk to the markets in their language, and who will be able to deliver accurate and appropriate information at regular intervals. Parties involved should accept that this is an expert task and outsource failing the in-house knowledge.

For the acquirer, it is not going to be enough simply to puff the company up as a market leader, and say the acquisition pushes them even further ahead of the competition. The markets know each company’s place in the landscape, and analysts will cut through the hype like a hot knife through butter. Finding critical friends who will play devil’s advocate and challenge pre-deal presentation options will help get the right tone and content for the announcement and subsequent communications.

Don’t be afraid to place the current deal within a wider strategy. Markets don’t like surprises, and if they understand that the current deal is, part of a broader push into new territories or a wider strategy to add new products or services to the line, they may react to it more positively than if it comes out of the blue with no strategic context.

Communicating the deal

The first announcement of the deal needs to come from the M&A partners. Any kind of leak is unwelcome and might be inaccurate. It might lead to speculation which might overshadow the facts when they are made public. It puts the partners on the back foot having to respond to the leak or ignore it, probably leading to further speculation. Leaks are likely to come not from employees but from third party staff. But wherever they come from, a firm, clear confidentiality process for everyone in the chain is a real help.

When it comes to making the announcement make sure to keep it clear, crisp and upbeat. Be positive about the benefits it will bring, be specific about what those benefits are, and relate those benefits to the market. Don’t make promises that might not be delivered, avoid speculation in favour of fact and steer well clear of hype. This is a business deal, and it is important to act in a business-like manner.

Use expertise, either internal or external, to fine-tune the announcement. Professional expertise will also be helpful in dealing with commentary that will follow the announcement. There are many ways of responding to comments and getting the pitch and tone right will be beneficial. It may also be necessary to respond to commentary on inevitable unpleasant consequences such as job losses or de-investment in some geographies. Have responses prepared, but also be confident about making off-the-cuff responses in live stations.

During the integration

Communications and shareholder support does not stop when the deal is announced. It must continue throughout integration.

In the early stages of integration regular communication is vital to maintain market confidence. Be proactive rather than reactive wherever possible through for example announcing quick wins such as early milestones met. If key personnel leave the business present this in a positive light, so they are not perceived as abandoning ship but as seeking fresh challenges.

As the integration progresses, it is easy to get bogged down in the day-to-day, but the markets can be kept interested, and share value kept buoyant, by regular positive reports. Problems with integration often start to surface nine to twelve months post close, when issues like difficulties with IT amalgamation can impact across the business. Be prepared to handle issues by leading, not reacting to rumour and speculation.

What is clear through all this is that high quality communication is a key to maintain market confidence and business value. Putting communications front and centre from the outset, and as is required thoroughly during the integration process, can have a big impact on maintaining market confidence and keep share value on the right side of the growth curve.

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