Pre-deal
Communications for Post-deal Success: The Role of CEO to CEO
Communications
M&A Insider
Quarterly Guide of Trends and Information about Buying and Selling
Mid-Size Companies
Vol. 5 No. 4, Winter
1999/2000
by Diane C. Harris
Good
communication through every step of deal-making is important to assure a
successful transaction. That communication may be internal, among the
members of the buy-side or sell-side team, or external, between acquirer
and target. The CEO has a role to play at each stage, from the first
articulation of the vision to the final feedback on the post-deal plan
execution. In this article we examine the role of CEO to CEO
communications in assuring future success of the combined venture.
One
element of communication that can have enormous impact on post-deal
success is between the heads of each business. These “CEO to CEO"
discussions should take place between the two people who will have a
direct reporting relationship post-transaction. Personal respect is even
more important than personal chemistry if the parties are to successfully
work together and model the appropriate attitude and spirit for their own
teams.
During
these one-on-one discussions, the crucial discussion is about the shared
vision of the companies together and the mutual commitment of management
to achieve the vision. Often the seller, even if he’s not the owner,
feels that the company is his baby; he wants it in good hands. If the
buyer can communicate honestly and openly and convince the seller that his
company will be in good hands, the buyer is a long way toward having a
good deal done.
Putting
off the CEO to CEO discussion until after the deal is done risks an
unaligned vision and the success of the deal. When we facilitate these
discussions for clients, we are sometimes asked: “Suppose something
happens that kills the deal’?” Our answer is that it would be
fortunate if any bad deal were killed pre-closing. The really expensive
mistake is doing a bad deal.
There
are four aspects to this CEO to CEO communication. The personal issue,
while not the most important of the points to be discussed, has so much
emotion that it is often best dealt with first. Second, there is a control
aspect, which often has as much emotion as the personal discussion and
should also be covered early. Third, there is a major vision aspect that
needs to be mutually agreed, and for which disagreement is a major red
flag. Fourth, there is an implementation aspect for which the CEOs need
not work out all the details, but they need to be able to agree on the
major points and to give overall direction to and involve their teams.
Special attention must he paid during the process to get management to
commit to the basics which drive the deal’s future success.
The
following points, and the communications thread running through, are just
a sampling of the kinds of questions that need to be addressed:
1.
On the personal side:
 | Will acquired wealth from the
deal interfere with the head of the target company’s working as hard
after the deal as before? |
| Does the acquired company’s
management have an equal chance for promotion? |
| What kind of travel will be
expected? |
| How will each CEO know when the
deal is a success? |
| How will they communicate and
how often? |
| What are their working styles?
Early warning discussion or polished staff work before talking? |
| What is the “political”
climate? |
| What will be the salary, title
and incentives for the head of the acquired unit? |
| What perquisites will be
continued, which won’t? |
| How strongly does each CEO feel
about vision? What is each prepared to do to make it work? What is each
not prepared to do? |
| Etc. |
| Why is this a good deal for
each business? What can they become together that they can’t separately? |
| Where will the major synergies
come from? Will they be growth or consolidation synergies, or both? |
| How will the company’s
strategies be explained to all the stakeholders. including Wall Street,
regulatory agencies, local media, unions, employees, etc? |
| How will the shareholders react
to the merger? The market? The customers? The trade? The competitors? The
employees? The unions? |
| Will the acquirer put in
additional cash to help the target achieve something it has long wanted to
do but couldn’t finance? Or is the acquirer looking to the target as a
generator of cash to help out with other corporate problems? |
| What are the most key
strategies to agree on? Where is there disagreement? How much will be
tolerated? How will it be resolved? When? |
| Will any facilities be closed?
How will it be decided which facilities will close? |
| Will people be terminated?
About how many and where? How will these plans be communicated? |
| What is the right reward system
to have in place to achieve the vision? |
| What cultural glitches will
likely arise and how will they be handled? |
| Who will communicate with the
trade and customers? How? When? |
| What is the timeline and who
has individual responsibilities for capturing which synergies? |
| When will various corporate
systems be put in place? Budget systems? Strategic plans? Quality plans?
Succession plans? Diversity plans? |
| What dotted line relationships
will be established? For example, can an operating unit controller be
hired without the corporate controller’s approval? |
| How and when should all the
details be communicated to all levels of employees? Which policies will be
rewritten? By whom? When? |
| What kind of financial
reporting packages will be required? |
| How involved will corporate
staff be with the target’s operating staff? |
| Will benefit plans be merged? |
To
most of those questions there are no simple yes or no answers.
Communications are needed before a decision is made. Much more will be
accomplished if the right atmosphere is set from the top and trickles
down. As a result of these conversations, clear direction will given by
the CEO to the implementers, and the mood of implementation will result
from how the leaders treat each subject and each other.
Given
that such communications can really facilitate the two CEOs working
together, and increase the chance of success, it is surprising that more
companies do not make this concerted effort. It is also surprising that
CEO’s who see the benefits of having such discussions do not often
extend the same discussions to their own direct reports (and so on, down
the organizational ladder) to address the concerns of their own
employees’ personal issues, control issues, and understanding of the
vision they are to implement.
Communication sets the
stage for effective post-deal integration. If the CEO is watching, an
acquisition is more likely to work. If the CEO is communicating, he or she
is personally helping to make it work. If the CEO is leading by example,
the company’s culture is being prepared to effectively implement the
transaction.
