Best Practices for Communications During an M&A Transaction
Misinformation can destroy the value in a mergers and acquisitions (M&A) transaction or make post-deal integration a nightmare. That is why communication should be part of the process early on, says David Heinsch, Senior Vice President of the Corporate Advisory Group at Padilla, a global public relations and strategic communications firm.
David outlined the various risks associated with communications in M&A transactions on The Transaction Abstract podcast with host Joe Hellman. His advice to both buyers and sellers: “Rethink the role of corporate communications as you contemplate a transaction, and get them involved early because there is so much at risk.”
Risk Related to First Impressions
This risk pertains to the initial reaction of employees upon learning about the impending transaction. Human nature leads individuals to form quick judgments and emotional responses when they receive significant news. In an M&A context, employees might wonder how the deal will impact their job security, work environment, and future within the company. If they perceive the news negatively, it can lead to decreased morale, productivity, and engagement.
“All those months’ and years’ worth of work going into a deal,” says David, “and you know employees are going to react to that in maybe ten minutes. They’re going to render a verdict like that.”
To manage this risk, it is crucial to provide employees with clear, concise, and transparent information early in the process. This helps mitigate uncertainty and allows employees to better understand the rationale behind the transaction, ultimately improving the first impression they form.
Risk Related to Message Control
“If you’re a buyer,” says David, “you have every right to control all the dimensions of [the communications of the acquisition]. … It’s important to get corporate communications involved early because they can hopefully gain some really important insights into how communications work within the target, what sort of information employees get, how frequently … they get it. … Is this going to be a complete surprise to their employees? Is it going to be well understood and embraced? It’s impossible within a very short amount of time to gain those insights.”
When communication is not carefully coordinated, it can lead to confusion, rumors, and misinformation among employees. Acquirers often have more control over the messaging, but it is equally important for sellers to manage their messaging effectively to minimize potential disruptions and maintain employee morale.
David recommends establishing a single source of truth (perhaps a web page), providing periodic updates (even if nothing has changed since the last update), and involving corporate communications from the start to craft a messaging plan.
Risk Related to Audience Sophistication
Different stakeholders will have varying levels of understanding and interest in the intricacies of a transaction. For example, employees who work at public companies might be more accustomed to receiving complex financial information, whereas employees in closely held companies may not have been exposed to such details previously. Communicating effectively requires tailoring the message to the audience’s level of sophistication, ensuring that everyone can grasp the key points. Overloading employees with overly technical or irrelevant information can lead to confusion and disengagement. Thus, it is essential to strike a balance and use plain language when discussing complex financial and strategic aspects of the deal.
Risk Related to Communications Channels
This risk stems from overreliance on digital communication methods, such as email or social media, at the expense of personal interactions. While digital channels can efficiently disseminate information, they may lack the personal touch needed to address employee concerns, build trust, and manage emotions effectively.
In high-stakes situations like M&A, employees may require face-to-face interactions, town hall meetings, or direct supervisor involvement to feel supported and heard. Failing to provide these personal touch points can lead to skepticism, mistrust, and frustration among employees. Therefore, a balanced approach that combines digital communication with in-person interactions is essential to minimizing this risk.
Beyond the financial and operational aspects, M&A transactions also carry emotional weight for employees. Employees may fear job loss, changes in company culture, or uncertainty about their future roles. Recognizing and addressing these emotional aspects is vital for effective communication. Companies should encourage feedback mechanisms, provide emotional support resources, and demonstrate empathy to help employees navigate these emotions during the transition.
Balancing Discretion and Communication
“I’ve seen it a lot in my career of corporate communications roles,” says David. “It’s not uncommon for [the corporate communications team] to be brought in very late in the process. And we can all deeply appreciate the confidentiality that is imperative [to M&A]. But I tend to take a little bit [of a] different look at corporate communications and the role that it plays in M&A than I think a lot of other leaders do. I look at it as a risk management function because once a deal closes, that gives way to all of the execution risk that requires employees pulling in the same direction.”
David’s advice is to have a plan and get your experts on communication involved early. “It’s really difficult to be strategic on short notice. … And lastly, again, just acknowledge that the emotion is more than just the dollars and cents and the operating model.”
Redpath and Company
Redpath and Company help clients make more informed decisions that contribute to their financial well-being by providing proactive, innovative, and value-driven CPA and advisory services for closely-held businesses, private equity, government entities, and nonprofit organizations. Core commercial industries served include retail, manufacturing, distribution, construction, real estate, engineering, and technology. Areas of service expertise include audit and assurance; personal, business, and international tax; state and local tax; sales and use tax; and succession and estate planning. Redpath also guides clients throughout the entire business life cycle with M&A advisory services (corporate and deal strategy, transaction support, and integration); accounting and financial management outsourcing; and valuation services. The firm was founded in 1971 and is employee owned (ESOP). With offices located in St. Paul and White Bear Lake, Minnesota, the firm ranks as one of the top CPA and advisory firms in Minnesota and is a top 120 firm nationally. Redpath is a member of HLB International, a global network of independent advisory and accounting firms. For more information, visit www.redpathcpas.com.