The flow of transactions has been noted in this blog and throughout the financial press. In addition, the FT led an article earlier this week noting the volume of hostile deals (US appetite for hostile takeovers hits post-crisis high) as the M&A market heats up.
I want to address in this some of the key challenges that distinguish hostile from friendly transactions. From my perspective, they fall broadly into 4 categories; Access, Engagement, Leadership, and Transition. I want to deal with Access specifically on this blog:
Many of my legal friends will point out to me that this is a very simple matter…which is to say that anything which is commercially sensitive is an anti-trust matter and is therefore restricted. There is no doubt that this is correct. Access, however, is a much broader issue than that. Let me illustrate what happens in a friendly transaction as opposed to a hostile one:
- The breadth of contact between acquirer and acquire changes very quickly post announcement from the deal team to operational, shared service (HR, Finance, IT, Procurement). This enables the completion of any outstanding diligence questions. In addition, the acquirer starts to focus more intensively on priorities in the immediate post deal phase, again leading to a series of enquiries, questions and resourcing needs, all of which lead to broadening and deepening of contact.
- Through this process, communication of intent (click on this link to read more) starts to percolate through the organisation, not just from the rather ineffective and often distrusted ‘top-down’ route but on a peer to peer, lateral basis. Good acquirers recognise this as an opportunity to deliver key messages and most importantly receive and respond to feedback, all of which starts to build trust and openness.
- Cultural differences, which I note are increasingly used as a reason for deals not proceeding, can start to be understood and responded to, or discounted as not significant. In a deal I worked on recently, the visit of an operational regional leader (just post announcement) to a plant where his practical understanding, willingness to engage with employees on the shop floor, and brainstorm real solutions to immediately identifiable problems, created a sense of cohesiveness and had huge impact as a consequence around the target.
- Clarity of process. Whilst the commercially sensitive issues stay off the table, understanding how certain processes work, why they are important and their history is incredibly valuable to an integration exercise which, for certain areas (HSE, adding new suppliers, month end closing etc), requires early gap analysis and resolution, often within the first 100 days.
- For commercially sensitive areas, what can be really valuable is to get to a consistency of definition behind financial and procurement based terminology. This shortens the period post closing dramatically in terms of identification and achievement of potential cost synergies.
I’m aware that Access is not black and white….even in hostile deals, there continues to be some availability but in my experience, it’s limited and coloured by the nature of the relationship as defined by the two sets of leadership. Most importantly, the lack of access and therefore ability to remove some of the fear and concern (which feeds directly into reduction of productivity click through for more) is probably one of the most pernicious of the problems in hostile transactions.
In an activity which has enough problems of its own already, adding the ‘hostile’ dimension just makes the challenge of successful integration that much harder. Next week, I will deal with the issue of Engagement.