Let’s make a deal

Mergers and acquisitions are resurgent – a factor in the stock market’s buoyancy, a topic of conversation everywhere and a sometimes challenging reality in our jobs as investor relations professionals.

The current issue of Barron’s advises investors on “How to Play M&A” and offers some stats from Dealogic:

So far this year companies have announced deals worth $1.52 trillion that are either completed or pending, according to Dealogic. That’s up 56% from last year and marks the largest dollar amount for deals since the $2.06 trillion recorded during the same period in 2007. Jumbo deals in particular are making a comeback.

Mergers, divestitures and other deals are popping up all over. The top five sectors are healthcare, telecom, real estate, tech, and oil & gas. Make no mistake, M&A is cyclical, as seen in this chart from Barron’s:

M&A deal value by year

If you observe that the last two peaks in M&A activity coincided with stock market “tops,” you’re not alone – although Barron’s believes this bull still has room to run, in both stock prices and deal flow. We’ll see.

My point here is that IROs and IR counselors should develop M&A communication as a core competency. Mergers are so important to the strategic future of most companies – as buyer, seller or competitor – that we need to dig deeply into how deals do (and do not) create value for shareholders. And we need to consider how to tell that story.

The first instinct of some CEOs, and IR people, is to trot out familiar M&A bromides: “strategic combination,” synergies, “merger of equals,” 2+2=5, “critical mass” and excitement about the future. The press conferences are all smiles. Not that these stories are false, but they don’t tell investor whether the transaction is really creating value.

Worse yet, merger messaging can arise from defensiveness. Execs who have spent months thrashing out a deal may draw talking points from the touchy issues: where the new headquarters is or how the top jobs are divvied up. Significant maybe, but not the main point for investors.

Here are three key needs to consider in communicating M&A:

  • Strategy. An acquiring company must explain why the deal makes sense and keep explaining it. Strategy is not a combined list of products or expanded footprint. It’s how the deal changes your competitive position, how it changes who your company is, three to five years from now.
  • Metrics. Besides adding two companies’ sales together, merger announcements most commonly discuss forecasted cost savings and change to EPS (acquirers love to say “accretive”). How about operating cash flow per share? Return on capital invested vs. your cost of capital, or change in return on equity overall? Impact on dividends?
  • Follow-through. Success in M&A is all about integration, and IROs can help execute the strategy. When it comes to telling the story, plan for follow-up announcements as milestones are achieved. Track those metrics and report the progress. And keep explaining the “why.”

I’m not saying these are the answers. Getting the right messaging depends on all the specifics of your company, the deal that’s in front of you, your industry and what your investors care about the most. But developing that messaging with the CEO and your deal team is one of the most important jobs of IR during a time of transition.

IR professionals also play a central role in managing communication. It’s critical to lay out a detailed timetable for all communications that need to take place on Day 1, announcement day, and following.

Delivering the right investor messages, tailored for each audience, is essential in playing “Let’s make a deal” as a public company.

© 2014 Johnson Strategic Communications Inc.

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