August 17, 2016

Governance

Carol Wolf

Acquisition Integration for the IRO

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Merger and acquisition activity is on the upswing in 2016. At the end of 2015, companies were sitting on more than $5 trillion in aggregate cash reserves, according to J.P. Morgan Chase. This means that as the economic environment becomes more tenable, companies have the resources to make the deals.

“Five years of consistent growth and steady recovery in the U.S. is supplying buyers with the confidence to seek out acquisitions as they face sluggish organic revenue growth and limited operating margin improvements.” – J.P. Morgan Chase Co.

Affected investor relations departments will have their hands full blending what were once two separate entities into one cohesive whole. To facilitate the integration process, IR department will have to tackle issues ranging from the tools (i.e., website consolidation) to topics (e.g., capital allocation) in order to help investors understand the strategic vision and value proposition for this newly combined entity.

Get Started Early
Becoming fluent in the deal rationale, as well as the acquisition candidate’s business portfolio and end markets, is critically important. But there are other insight to be gained. For example, IROs should understand how the transaction will impact both companies’ respective shareholder bases (e.g., what investors will have to sell their positions because “NewCo” will exceed their market cap parameters), as well as what the combined shareholder base might look like on Day One.

The time to understand and anticipate changes in the shareholder base is well before the deal is finalized,” said John Breed, who has more than 35 years of IR experience at companies such as Noble Drilling, Cooper Industries, and Texaco.

Get the Story Straight
The newly constituted investor base will have a lot of questions – both in terms of what’s changed and what’s not. For example, if dividends were a priority in only one company’s capital allocation plan, investor expectations will need to be managed. Likewise, if one company put an emphasis on R&D while the other grew through acquisition, investors will want to understand which approach will prevail going forward.

Get Ahead of Your New Audience
How should the combined company position itself? What kind of investors should be targeted? What are the best ways to communicate with and engage that base? These are all questions that should be determined even before the acquisition is completed. By understanding the company’s expected post-transaction investment thesis, the IRO will be better able to reset the coordinates of the company’s investor targeting program. NewCo could appeal to a segment of the investment community that previously had not been on the IRO’s radar screen.

Get on the Same Page
Finally, IROs must make it easy for investors to learn about and follow NewCo. Updating and consolidating IR channels and tools is critically important. For example, the combined company will not need two investor websites. In the time between when the transaction is announced and when it closes, IROs should put the plans in place to reconcile platform redundancies – as well as leverage existing content and other assets – in order to remain a primary resource for investors.

When two companies combine, it can be an exciting time, but nonetheless it can provide a perfect opportunity to refresh and renew your investor relation tools and philosophy.

Written By Carol Wolf

1 comment Show

Christine Van Roosen

August 19, 2016 at 8:54 am

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Great to hear what John Breed has to say on communications planning relative to M&As.

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