The macro and geopolitical backdrop has ramped up the challenges for deal teams worldwide this year. Since the outbreak of war in Ukraine, rampant inflation, tightening financial conditions and a reset (some might argue reality check) in valuations have hit the brake on volumes following a record-breaking 2021.
Rarely has the outlook felt so uncertain for dealmaking; as one industry leader put it to us recently, ‘prices are down, but nothing’s for sale’. Expectations of an extended cycle of higher rates, a drought in deal financing and a fundamental mismatch in pricing expectations look set to loom large for the foreseeable future.
Yet the longer-term secular drivers behind transactions remain unchanged. Acquisitions will continue to play a key role in achieving scale, which is particularly important to competing with peers and building resilience. This is especially true in uncertain times.
No matter the profile of the market outlook, every transaction scenario presents its own unique set of drivers, risks and contingencies, demanding a bespoke, strategic communications approach. In a quieter period of transactions, those that proceed will be subject to greater levels of scrutiny relative to busier times. And as debt costs soar, this scrutiny will extend to how deals are financed. In the private markets arena, gearing will come under further pressure and certainly be closely followed, while for corporates, media and shareholders will be focused on the relative value of deploying cash towards transactions versus paying down debt or distributions to shareholders.
In the current context, three key considerations stand out.
1. Articulating the value of a deal must go beyond price
Determining and defending the right price of a deal is of course critical, but it doesn’t guarantee success. Rather, success comes through convincing a large and varied set of stakeholders – some with conflicting interests – that a merger or acquisition substantiates a broader vision and considers culture and human capital, sales and marketing, supply chains and a host of other issues.
Critically, the rationale has to convince multiple audiences - the buyer, seller, regulators, employees, customers and, increasingly, society at large. In addition, opposition from major shareholders or negative reactions from the press or public interest groups can add pressure. Communications must be prepped to reach all of those stakeholders and to address all conceivable variables.
2. Buyers beware – you must be a known entity
Working to establish or advance an entity’s market position and reputation is a crucial pre-cursor to announcements, particularly in scenarios at high risk of regulatory or political intervention. Laying the reputational groundwork can also support subsequent due diligence processes, which have become increasingly data- and reputation-focused.
While a rising tide of political protectionism and regulatory interventionism have been key considerations for some time, more recent evidence of ‘scope creep’ has emerged across markets.
In the US, more active intervention by the Committee on Foreign Investment in the United States (CFIUS) and more aggressive antitrust enforcement by the US Department of Justice has fundamentally altered the way in which companies interact with M&A processes, bringing political considerations to the fore of many transactions. In the UK, the National Security & Investments Bill, which earmarked 17 sectors as potentially ‘notifiable acquisitions’, requires deals within these parameters to clearly and pre-emptively state why they satisfy any potential concerns that could warrant subsequent investigation.
In operational terms, regulators’ definition of jurisdictional relevance – namely, the scope of a business’ operations and customer base – is widening. The UK Competition and Markets Authority, for example, is going to significant lengths to establish jurisdiction over software deals, as tech- and software-related transactions move centre stage in political protectionism.
In Europe, the expansion of the powers of the European Commission, enabling regulators to block deals on competition grounds even in scenarios where the target has negligible presence on the continent, has set a precedent in key strategic sectors.
The definition of acceptable Foreign Direct Investment is also changing, reflecting shifting views on globalisation. Near-shoring or, as Janet Yellen put it, friend-shoring, doesn't just relate to supply chains. In the future it may also relate to how cross-border M&A is policed and received by global regulators.
Key to preparing for potential regulatory and political intervention is ensuring that a buyer’s presence in relevant geographies is understood and can be clearly evidenced. Establishing reputation and, ultimately, trust, is a key task when contemplating a communications program.
3. Marathon deals require consistent communications throughout the process
It’s worth remembering that the days of the sprint to close are long over; a Bloomberg survey of 81 publicly available M&A agreements for deals valued at $1 billion+ found that the average time to close was 278 days (roughly nine months)¹. Transactions are increasingly multi-jurisdictional, requiring clearances across multiple markets, a major driver behind more protracted timelines. Of course, extended processes for regulatory approvals and due diligence opens the window for intense scrutiny from media and interest groups, political interference, customer revolts and a rival bid.
Structured scenario planning and preparation must encompass the key communications moments that could arise through extended timelines. Leadership communications during these periods will inevitably focus on the deal but should also prove that the transaction is not distracting from business as usual and that the wheels are still very much turning.
Cognisant of the needs of employees and customers through what may be an unsettling time, communications should pre-empt and respond to speculation and uncertainty. At a time when the dynamics and social contract between companies and their employees are evolving rapidly, detailed work on employee expectations and cultural synergies of the future of the business can go a long way.
As timelines extend, it’s important to think about communications across audiences and reaffirming the case for the transaction at every stage. Closing, historically a largely administrative event, provides another opportunity to remind audiences of the rationale for the deal and drive momentum behind the new entity.
The bottom line:
- Getting a deal done isn’t just agreeing a price; value comes in many forms, all of which require justification.
- Buyers need to be known and trusted across markets.
- Deal communications isn’t just a press release at signing; use communications throughout the process to reach all audiences.