By Jim Buckley
At the recently concluded NIRI National conference in Seattle, I was invited to moderate a panel entitled Communicating the Deal: How IR Can Drive Success. The session featured a seasoned cast of practitioners who have successfully navigated an assortment of M&A transactions ranging from strategic purchases and spinoffs to hostile takeovers and going private. Participants were treated to valuable insights, anecdotes and lessons learned from Andrew Kramer of Interactive Data Corporation, Brian McPeak of Owens Corning, John Chevalier of Procter & Gamble and Kristy Nicholas of Expedia.
Deals have begun to pick up momentum again in recent years, with the Institute of Mergers, Acquisitions and Alliances (a fabulous site if you need M&A data) estimating that there were approximately 15,000 deals in North America during 2011 amounting to $1.6 trillion. This is the equivalent of someone buying Apple, Exxon Mobil, Microsoft, Wal-Mart and General Electric – combined. Worldwide, that number rises to $5.1 trillion.
While the global economy and stock markets have suffered some major indigestion in the past two months, the M&A environment, particularly here in the U.S., is expected to remain strong in 2012 for a whole host of reasons. First, barring new legislation, U.S. capital gains taxes are set to rise sharply at the outset of 2013, which is prompting asset selling now. Second, corporate profits remain near all-time highs, and in the post-Great Recession era company balance sheets are far healthier and better positioned for M&A. And lastly, private equity firms are continuing to sit on a huge pile of idle cash that they need to deploy.
With all this deal activity likely on the way, what type of a role can investor relations play? Here is a sampling of takeaways and lessons learned that we collectively shared at the session. Being the movie buff I am, I labeled each with a memorable Hollywood quote:
- "Show me the money!" From a Wall Street perspective, the success or failure of nearly any deal starts and ends with messaging. Every transaction has to be put into context starting with the deal rationale to the valuation and finally, how to benchmark its success. In talking with investors, companies need to make the “why” and “valuation” portions compelling and keep it simple. Also, consistency of message is paramount, particularly in the age of social media. Everyone can see everything these days, so you can’t tell investors anything different about a deal than what you are telling your employees, customers or the media.
- "What we've got here is failure to communicate." One underlying theme of the panel was to make certain that you coordinate closely with the other side in the deal. From rudimentary items such as timing of individual press releases to more multi-faceted elements such as messaging, it is critical to be in lock step with your counterparty in the transaction. The problem is that you are inherently juxtaposed with them in that each side usually wants to claim victory in the deal for their own stakeholders. However, ideally you will be able to communicate that it is a win/win deal – the right price was paid for the right acquisition at the right time, and that the sum is truly larger than the individual parts.
- “You've got to ask yourself one question: Do I feel lucky?” One of the keys to success in communicating a deal is to be prepared for the subsequent onslaught of questions from all constituencies. Investor relations folks need to rehearse management on the myriad of topics and issues that could be raised. Commit your key milestones to memory. Answers will need to be succinct and consistent. For that reason, limit the number of spokespeople. In addition, if the deal requires shareholder approval or an equity raise, it may be a great time to evaluate the senior team’s capabilities and consider presentation training.
- “I feel the need—the need for speed.” The simple fact is that most deals take longer than expected. Be sure to set realistic timelines for the deal itself, to complete the integration and to realize the expected synergies. Many companies set themselves up to fail or face unnecessary pressure because they are so anxious to impress the Street, customers and competitors with how fast they can get everything done. Give yourself a cushion for the unexpected and push out your deadlines. Whenever possible, use softer deadlines such as “in the second half of the year” rather than a firm date such as September 1st.
- "Get your stinking paws off me, you damned dirty ape." In the case of the M&A world, you can insert the word “arb” or “activist” for the word “ape.” Frequently deals will instantly attract arbitrage investors and sometimes activists. This is especially true when a high premium is being paid for a company or various approvals are involved. Suddenly the IR department will be barraged with calls from a whole smorgasbord of investment firms you’ve never heard from before and likely never will again. They have no true interest in your company or its value proposition, but are likely just trading the risk premium in the deal. Therefore, they tend to pepper companies with never-ending requests – seeking constant updates and trying to ferret out any tidbits of information they can. There is no real panacea for dealing with the arbs as ignoring them is likely easier said than done. After the panel, one IRO likened the experience of communicating with the arbs, who would each call multiple times a day, as a “three-month root canal.”
- "Toto, I've got a feeling we're not in Kansas anymore." Transactions can bring about a significant amount of change at your company. It also represents an opportune time to review many of your existing policies and procedures. Does this deal affect your sales visibility and therefore your guidance policy? What are your company’s disclosure and social media policies? You need to be prepared if employees start tweeting or posting information/opinions about the deal. Is the information on your corporate and IR websites current? Beefing up the FAQ section of your IR site with deal facts can resolve some investor inquiries and save you from enduring more phone calls with very basic Qs.
- “Have fun storming the castle.” The final piece of advice that replayed through many of the panelists’ lessons learned was to underpromise and overdeliver. The obstacles are considerable when communicating any deal because you are invariably dealing with a fastidious audience on Wall Street. The hard truth is that most M&A transactions don’t live up to expectations, so the investment community is rightfully skeptical about your company’s odds for success.
Be sure to quickly immerse yourself in understanding all aspects of the transaction. Your assignment in communicating it to investors is to convince them why your deal is more the exception than the rule.
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