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Pre-deal Communications for Post-deal Success: The Role of CEO to CEO Communications

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:

bulletWill acquired wealth from the deal interfere with the head of the target company’s working as hard after the deal as before?
bulletDoes the acquired company’s management have an equal chance for promotion?
bulletWhat kind of travel will be expected?
bulletHow will each CEO know when the deal is a success?
bulletHow will they communicate and how often?
bulletWhat are their working styles? Early warning discussion or polished staff work before talking?
bulletWhat is the “political” climate?
bulletWhat will be the salary, title and incentives for the head of the acquired unit?
bulletWhat perquisites will be continued, which won’t?
bulletHow strongly does each CEO feel about vision? What is each prepared to do to make it work? What is each not prepared to do?
bulletEtc.

2.                  On the control side:

bulletWhat duties of the acquired company will now be taken over by the acquirer, such as shareholder communications, cash management or deal making?
bulletWho will make which decisions?
bulletWill the target’s management still have global responsibilities?
bulletWill there be a strategic plan? Who will approve it?
bulletWhat happens if the annual plan changes? Is the budget a commitment or a goal?
bulletWhat corporate policies will be enforced?
bulletWhat corporate approvals will the operating unit need to seek?
bullet  Etc.

3.                  On the vision/strategy side:

bulletWhy is this a good deal for each business? What can they become together that they can’t separately?
bulletWhere will the major synergies come from? Will they be growth or consolidation synergies, or both?
bulletHow will the company’s strategies be explained to all the stakeholders. including Wall Street, regulatory agencies, local media, unions, employees, etc?
bulletHow will the shareholders react to the merger? The market? The customers? The trade? The competitors? The employees? The unions?
bulletWill 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?
bulletWhat are the most key strategies to agree on? Where is there disagreement? How much will be tolerated? How will it be resolved? When?
bulletWill any facilities be closed? How will it be decided which facilities will close?
bulletWill people be terminated? About how many and where? How will these plans be communicated?
bulletWhat is the right reward system to have in place to achieve the vision?
bulletWhat cultural glitches will likely arise and how will they be handled?

4.                  On the implementation side (recommended participation of at least the direct reports of the CEO’s):

bulletWho will communicate with the trade and customers? How? When?
bulletWhat is the timeline and who has individual responsibilities for capturing which synergies?
bulletWhen will various corporate systems be put in place? Budget systems? Strategic plans? Quality plans? Succession plans? Diversity plans?
bulletWhat dotted line relationships will be established? For example, can an operating unit controller be hired without the corporate controller’s approval?
bulletHow and when should all the details be communicated to all levels of employees? Which policies will be rewritten? By whom? When?
bulletWhat kind of financial reporting packages will be required?
bulletHow involved will corporate staff be with the target’s operating staff?
bulletWill 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.


 

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