Talk Isn’t Cheap
The merger and acquisition process is ultimately driven by communication. Who communicates what—and when and how they do that—at every stage of the buy-sell journey could ultimately determine the success of a deal.
We’ve seen trust erode and deals fail because an executive sponsor for the buyer fails to stay engaged. We’ve watched owners disclose too much information to their employees before a deal is actually complete, causing uneasy feelings that lead to lost talent, trust and leverage. And we never underestimate the importance of releasing communiqués to the marketplace in a way that benefits all parties.
Communication can be a complicated web during an M&A transaction, but by strategically thinking about what, when, where, why and how communication happens and who releases information to whom, you can actually strengthen relationships and help create a smoother transaction.
Communication involves a vast range of nuances and details—critical information that is being discovered and shared during the M&A process. Initially, there’s a courting aspect to the exchange, when a buyer, and more specifically the executive sponsor, is getting to know a potential company to acquire. As the M&A process unfolds, the relationship goes deeper.
Sometimes communication can fade out as a buyer and seller manage day-to-day business. Other times, once the deal is progressing and due diligence is under way, the buyer’s representative might detach and move on to the next deal, allowing that one to work itself to the close. This can make a seller feel jilted, after all of the attention and focus up front, only to be shifted to the perceived back burner. It’s important to stay engaged through the close of the deal.
When there’s strong communication during the entire M&A process, from the initial engagement to close, it typically results in a high level of trust that can help prevent insecurity or irrational fears from derailing a deal. When the executive sponsor is engaged throughout the process, steering the way when buyer and seller are immersed in everyday business, the M&A process is more likely to continue on a smooth track versus stalling—which then can result in second-guessing and unnecessary stress during due diligence and other key aspects of completing the deal.
Communicate with Purpose
Communication within the selling organization during an M&A transaction can be a complex situation for owners to manage. We see this all the time, where a dedicated owner is dealing with internal turmoil—feeling an obligation to be overly transparent with employees and share information about the deal before the transaction is completed. Many owners feel dishonest about not disclosing the fact that a deal is in progress. They feel like they owe it to the team that is so committed to the company to let them know that change is coming. The problem is, there’s no solid idea of what that change means for employees until the deal is much closer to close.
When an owner discloses information to staff, there can be a loss of confidentiality or ability to manage and direct how the message is communicated to the marketplace. Firms that tell their staff about M&A transactions before they are close to completion typically deal with more challenges during the process. They might lose staff. They can sacrifice productivity. The value of the firm can be compromised.
The reality is most employees want to know how a deal will affect their job, compensation and benefits. Communication should wait until an owner can answer those questions—and that usually is within a week or two of closing. Until then, only those individuals who will influence the decision should be part of the conversation.
If an owner’s conscience is the reason for discussing the deal, that’s reason to take a step back. Consider the impact the message will have on staff. Long-term, based on our experience, it’s much more beneficial to save any announcements until the details can be spelled out to employees so they walk away from the conversation with a real understanding of what the future brings for them. Proper communication can also engage employees after the deal is closed and create an even stronger team.
Good leaders are typically great communicators. They understand that, during any process, proper disclosure is critical. What you say and how you say it requires discipline. It involves strategy, too.
Sellers should craft their communication not only with staff but also to clients and stakeholders like insurance carriers, vendors and strategic partners. Buyers should enlist an executive sponsor who will communicate openly and consistently throughout the process, focusing on relationship building and executing the deal. Usually, buyers will provide guidance based on their communication best practices concerning how, when and to whom announcements about a deal are released after close.
What’s important is to always keep communication top of mind. Make it intentional. Keep it consistent. And remember that the relationships you build with positive communications can help position your firm for success in a transaction and in life after the deal.
Deal activity in July 2017 slowed to 28, down from 54 in June. The year-to-date number of transactions through July is up from last year, however, at 283 compared to 265. The most frequently purchased targets have been property-casualty brokerages (143 of the 283 deals).
Acrisure continues to be the most active buyer, announcing 26 deals through July. Broadstreet Partners was the second most active with 20. Both Arthur J. Gallagher & Co. and Hub International announced 17 deals.
July saw several significant transactions. The Carlyle Group announced it is selling its majority stake in Edgewood Partners Insurance Center to Oak Hill Capital Partners, another private equity firm. EPIC’s annual revenues approach $300 million. Terms of the deal were not disclosed, but it is expected to close in the third quarter of 2017.
Markel and State National Cos. announced a definitive agreement for Markel to acquire all outstanding shares of State National—a total transaction value of about $919 million. State National operates two niche businesses, Lender Services (collateral protection insurance) and Program Services (more than 60 programs with more than $1.3 billion in gross written premium). The deal is subject to approval from shareholders and standard regulatory review but is expected to close in the fourth quarter of 2017.
Trem is SVP at MarshBerry. Phil.Trem@MarshBerry.com
For more details on M&A activity, visit LeadersEdgeMagazine.com.