Analysts in the US are generally upbeat about the effect of the current wave of M&A activity, says a recent survey. Most think that the increased number of transactions will bring competitive advantage and growth benefits to the US economy. And the majority of the companies involved in the M&A tussles are expected to reach their strategic objectives.
So concluded a majority of the 75 financial analysts interviewed by Cambridge Reports/Research International on behalf of New York-based agency Ogilvy Adams & Rinehart in a survey investigating the success of US company communications.
The analysts questioned follow the sectors that have seen a boom in M&A activity in 1995: banking, health care, insurance, telecommunications and electric and gas utilities. Cambridge asked them why they thought there had been an increase in the number of M&A transactions in the past year; whether the companies involved would do well; and whether those companies’ corporate communications had been effective.
Nearly half of those surveyed felt that the recent wave of mergers has been based on solid business rationale, while 43 per cent attributed the increase in volume to ready availability of finance because of high share prices. Two-thirds of the analysts thought the companies involved would be successful in the aftermath of the transaction.
The analysts’ strongest views concerned the significance and effectiveness of corporate communications surrounding a deal. Almost three-quarters of the respondents thought that corporate communications influenced their views of a company’s future, with 41 per cent saying that good communications could add as much as 15 per cent to the value of a company’s shares.
The most significant messages that need to be conveyed to the financial community are that product and service quality will be maintained; cost efficiencies will be rewarded; synergies will be achieved; financing will be structured properly; and corporate cultures will be able to work together.
And the last point is where a lot of managements involved in deals fail to win friends. Over half of the analysts questioned felt that ‘getting separate corporate cultures to work together’ was the most difficult factor to get right. Just under half said that company communications on this issue were not very effective.
On the positive side, the most effectively communicated issues were to do with cost efficiencies, shareholders’ rewards, and the maintenance of product/service quality. But there was not one category in which corporate communications lived up to the expectations – and needs – of the analysts.
The survey also found that the ability of companies to communicate their objectives varied considerably according to the audiences they were addressing. Most companies can communicate effectively with analysts, investors, the business media, regulators and customers. But the analysts believe that communications with employees and local communities are less effective.
‘Companies should consider resources devoted in the direction of corporate communications to be well applied,’ concludes the survey. ‘{But}the phenomenon of unmet expectations reflects an ongoing high hurdle that companies need to cross whenever nuances of a transaction are communicated – and demonstrates just how aggressively companies need to redouble their focus on this key audience during transactions.’
OA&R suggests several ways to improve communications surrounding a deal. The first is for companies to get across their business, as well as financial, rationale for a transaction. Analysts do look for business justification for deals, such as synergies among markets and products and potential for further geographic expansion.
The second factor is to improve communication about how the merged companies will function together. Who will get the top management positions? Will the companies’ business styles conflict?
Finally, bump up the communications level to two key audiences which analysts perceive as often being overlooked – employees and local communities. Both are essential to the success of a merger or acquisition. ‘Special steps need to be taken to ensure the strong morale and consistent effort of those employees who remain to do the work of the new entity,’ concludes the survey.
