Being open with employees during the M&A process benefits your business.
M&A deals are on the rise. How should entrepreneurs and business leaders prepare their workforce when going through a merger?
In June 2018, Walt Disney Co. offered to purchase most of 21st Century Fox for $71.3 billion. That same month, AT&T acquired Time Warner for $85 billion. According to Deloitte’s 2018 M&A Trends Report, this is not surprising: “Corporate and private equity executives foresaw an acceleration of merger and acquisition activity in 2018.” For entrepreneurs, business owners and the C-suite, this projected rise in M&A activity means they could be part of a deal in the near future. It would be wise to consider an employee communications plan a vital element in the event an enticing deal comes to fruition.
The role of internal communications in M&A
Mergers and acquisitions are a great way to accelerate growth, but when they fail to produce the desired result, a common factor is poor communication, including a lack of information during the pre-merger period, and cooperation and coordination post merger. When a transaction is announced, employees often speculate and many companies become rumor mills. The first priority for many employees is, “Will I still have a job when all this is over?” This can cause panic if employees aren’t getting the answers they need. Some rumors are just worries and relatively harmless, but other stories or even media leaks can damage the company and cause valuable employees to jump ship. Uncertainty due to poor communication will not only lead to time-wasting rumors, it will impair employee engagement, reduce motivation and work quality and ultimately impact the company’s bottom line.
Whether you’re buying or selling, it’s important to keep your employees in the loop by communicating openly and effectively. Here are four reasons why you should control the flow of information and develop a robust employee communications plan before a merger or acquisition.
Employee loyalty and trust are at stake.
How a company communicates during a transaction has a direct impact on employee loyalty and trust. When inconsistencies exist between what a company says and how it acts, employees often lose faith in the organization. “One of the great ironies of M&A activity is that trust, a key ingredient for business success, often quickly dissolves, as M&A activity is usually cloaked in secrecy,” wrote M&A Consultant Jennifer J. Fondrevay.
Since employees often feel blindsided when a deal is announced, company leaders and other internal communicators can minimize the negative impact of M&A by creating a proactive communications strategy. The communications team should prepare messages for target audiences, develop a timeline for announcements and brief company spokespeople. There should also be a contingency plan in place for unexpected events. Employee trust is too costly to lose.
Your best employees can leave at any moment.
Since people at both companies are concerned about job security and responsibilities, employees want to know what changes are coming and when. Legal regulations can make it difficult for executives to be transparent, but when management haphazardly says, “Nothing will change” in an effort to keep employees motivated, trust will be damaged when things do, in fact, change.
If employees are kept in the dark or lied to, even unintentionally, many will choose to leave. Mass talent departure is one of the reasons M&A deals fail post-acquisition. In an effort to prevent your best employees from leaving, share information early and often. There are many ways to discuss a deal without sharing protected or false information. Saying “I don’t know” is often more comforting to employees than pure speculation.
Company culture is at risk.
During a transaction, company culture is affected – whether you want it to be or not. When two companies’ philosophies and values do not match (i.e. culture clash), M&A deals often fail. According to Deloitte, “... culture is inextricably linked to performance, especially in an M&A context. The question is not if – but how – companies should manage culture to safeguard the value of an M&A deal.”
To minimize culture clash between two merging companies, work to develop a cohesive culture. Communications teams should create a strategic plan for conveying the values and vision of the newly joined organization. Additionally, leaders, spokespeople, public relations and marketing professionals should all use the same messaging. Consistency is key to unifying a company.
Post-acquisition success is difficult to achieve.
M&As can be long, complex processes. M&A transactions can have a significant impact on employees – increasing stress, anxiety and uncertainty. After the deal closes, internal communicators need to maintain the momentum, minimize culture confusion and work to improve employee morale.
The failure rate of mergers and acquisitions consistently falls somewhere between 70 and 90 percent. This doesn’t mean deals aren’t closing; they’re closing, and then failing to deliver the results stakeholders expect. Researchers have found that frequent and open communication is central to post-deal integration and value creation. Don’t forget to communicate early as well as more often after the deal is signed.
Employee communications: Mission-critical
If a company fails to communicate effectively during a merger or acquisition, the company risks employee loyalty and trust, employee retention, company culture and long-term success. Effective communication is critical during M&A for four primary reasons:
Frequent communications reduce uncertainty and maintains a trusting relationship with employees.
Proactive communication can ease concerns about job security and retain valuable employees.
Intentional and consistent messaging can cultivate a unified company culture.
Open communication can facilitate post-deal success and long-term profitability.
Whenever a merger or acquisition deal is on the table, make sure your employee communications leader is at the table, helping ensure your outcome becomes one of the 10-25 percent that succeed.