If Being Acquired Isn’t Part of Your Business Plan … Prepare Your Survival Strategy
Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.– Wayne Calloway
When Eric Schmidt (Google) said he paid a premium of one billion for YouTube he spelled out part of the strategy companies increasingly use to compete – acquire for growth or to block competition. The old management stigma of NIH (not invented here) has been replaced by the scramble to keep up with or lead the pack at almost any cost. With the world economy showing signs of recovering, companies are positioning themselves for the next phase of growth, the next big thing! Companies that were started two – three and more years ago nursed their activities along paying close attention to their cash flow to bring their products, services and technology along waiting for the business climate to improve. Admittedly the climate for IPOs (initial public offering) is weak – not even considering the fiscal and physical toll it takes on the company – all indicators point to a pent-up M&A activity and enthusiasm for the coming.
Mind-boggling, record-breaking numbers have grabbed the headlines:
- Dell buying Perot Systems for $3.9 billion
- Cisco acquiring Tandberg for $3 billion
- Adobe buying Omniture for $1.8 billion
- VMware grabbing SpringSource for a lowly $420 million
- Intuit snapping up PayCycle and Mint for a lousy $170 million each
These are only the tip of the iceberg. Tons of friendly and unfriendly M&A deals are being pursued or speculated:
- HP and Polycom
- Oracle checking out SuccessFactors, Taleo, Concur, RightNow, NetSuite, Citrix, ???
- Dell, Nokia and HP watching Palm’s struggles
- Google promising a buy a month
Many more “discussions” are started and broken off.
M&A people couldn’t be happier…it has been a long dry spell for them. You can be very certain that they see a very lucrative and busy year for their industry. You can be certain that they intend to get their unfair share whether both parties are ready or willing for the wedding ritual or not. Hostile – and highly public – efforts such as Oracle’s acquisition of PeopleSoft cost both organizations considerable time, money and effort. In the end it also meant the loss of employment for thousands of individuals. Ellison’s acquisition of Sun was more harmonious but the two still face a long, tiresome, expensive and uncertain trip through the governmental quagmire.
Governmental agencies around the globe are taking a careful look at acquisitions by major corporate entities questioning how anti-competitive size is in today’s market. At the same time, the pro-active consolidation activities finds management of many public and private firms unprepared or poorly prepared to handle friendly or hostile tender offers or proxy fights.
Today’s boards of directors, company presidents and officers are developing a rich addition to their vocabularies. Expressions like “lead horse”, “golden parachute”, “white knight”, “scorched earth”, “shark repellent”, “poison pill”, “greenmail” and “arbs” are as well understood as bandwidth, VoIP, CPU, GPU, SKU, social media, cloud computing/storage, venture capital, and burn rate.
Management has added new members to their teams that include takeover lawyers, investment bankers, proxy solicitors and PR counsel. The new language and team members are key to management’s ability to control the situation. That’s because there are hungry, smart, and well-paid people around the globe who do nothing all day long but dream up deals. Mergers and acquisitions are no longer mere targets of opportunity. They have become an integral part of many organizations’ long-range growth strategy. Unfortunately, few corporate heads have received any training or education in such activities as mergers, acquisitions, and take-overs. Trial by fire is a rotten way to gain such expertise.
Financial sharks find today’s business and financial environment to be a very rich feeding ground. A new breed of investment bankers and lawyers is preparing for the economy’s upturn and they have access to large sums of money from investors who are looking to improve the returns on their money. It’s not surprising that a growing number of companies that have a clear idea of their goals and solid business model sometimes feel like wounded seals in a tank of great whites. The pent-up demand from governmental agencies and stockholders to see positive balance sheets has “encouraged” companies to stalk new opportunities and grow. It’s little wonder that the feeding frenzy gives company management fitful, sleepless nights. It usually means they have to divert their attention from the day-to-day operations and their primary business to devise plans to protect their organizations. Unfortunately most of these efforts are defensive rather than preparatory or offensive. As a result, they are expensive and disruptive.
When companies begin making unfriendly or unwanted acquisition overtures the usual reaction is to call in the corporate lawyers and put together a defensive plan. This usually includes adding bylaws that require super majority shareholder approval of mergers and/or liquidation; acquisition of property that can create regulatory and antitrust barriers; preparation of “black books” with contingency defense plans, elimination of cumulative voting and reclassification of the board of directors. All of these steps can be effective. They have to be considered and used when the sharks are already circling.
Communications and public relations also plays an important role in these campaigns since management needs to show shareholders that it is in their best interest to support their management. Many equate the activities to those carried out in a political campaign–black hat/white hat, character assassination, and guilt by association. The fast paced campaign includes scores of news releases, tweets, blogs and position statements; a myriad of phone calls; and instantaneous decisions regarding what should and should not be said. Quality and carefully planned media efforts play a key role in advancing management’s cause. They can solidify and clarify management’s position. They can influence institutional investors, governmental agencies and public opinion.
However, management should also use their communications tools to carry out offensive and strategic activities that keep the firm from being put on the defensive. Defensive moves can’t address the critical questions which arise in a takeover situation, such as:
- What are the maximum capital and earnings values of the company’s assets?
- Who can best manage them to provide the best return to the investors?
- What are the long-term plans and opportunities for an independent organization?
Positive and proactive PR programs can address these issues for private and public companies. Few private firms do anything to posture themselves with the financial community. However conducting even basic financial public relations activities can put you in a solid position when suitors call. They can also put you in a stronger bargaining position if management feels a merger is in the best interest of the organization, its investors and its employees. Unfortunately, even many firms that are public meet only the basic SEC requirements. They do little to “sell” themselves to the investor, financial communities or marketplace in general. Activities that private and public companies should undertake include an aggressive, prompt disclosure program on new products or services as well as research breakthroughs and contracts.
Positive news like this lifts the interest and support of customers and prospects. It also buoys investor and employee enthusiasm. Publicly held firms obviously must announce sales and earnings results. Private firms can modify this effort to position itself in the marketplace. The annual report is more than a report to investors and can be even more effective for both private and public organizations. The report can be an important compilation of company news and information. It can serve as a year-long selling tool for the company, its vision and direction. It can also promote the firm’s products/services. The report should emphasize the firm’s key assets – its people and their commitment to the customers and the success of the company.
Other activities include fact files or “white paper” kits for the financial community and media; meetings with industry analysts and strong publicity activities aimed at the appropriate print and online media outlets. All of these activities add credibility and viability to the firm. They provide an excellent platform for management to control and present its messages. They provide an opportunity for management to emphasize the value of its assets, how they are being managed and plans to meet tomorrow’s challenges/opportunities.
Battle Lines are Drawn
By pressing home these results, management gives investors, customers, partners and employees a much better understanding of the company. In the event of unfriendly acquisition overtures, management gives all of these interested parties a sound understanding of the company’s complete value proposition. Corporate takeover fights are management’s equivalent of war. And as in war, no one can rely solely on defensive weapons. A solid communications strategy and program (combined with a solid management team) can be the strongest strategic and proactive weapons that can be used to advance management’s case and position. It also puts them in control the issues and maybe their destiny. Proactive activities at the outset help end the battle on favorable terms. At least its nice to know it was your choice.