2018 was regarded as the ‘Year of Living Nervously’ after the ASX shed over $90 billion in February amid fears of rapidly rising interest rates in the US. By December the ASX recorded its worst yearly performance since 2011 and the worst fourth quarter since the GFC.
Within this whirlwind, Corporate Australia received a significant amount of attention, not all of it positive. Chairman of the Australian Competition and Consumer Commission (ACCC) Rod Sims has predicted that the regulator will increasingly clash with companies over merger proposals. At the same time, the ASX has flagged that it will increase its level of scrutiny of companies during the listing process, aimed at reducing the number of subsequent de-listings. Chief Compliance Officer at the ASX, Kevin Lewis, estimates the ASX has delisted more companies over the past 12 months than in the preceding five years combined. This isn’t a trend it wishes to continue.
With this as the backdrop, what will be the key considerations from a communication point of view in getting a deal across the line in 2019?
Keep the macro in perspective
There is a tendency to overestimate the influence of macro-economic issues on local operations. Yes, BREXIT and US-China trade relations are important – but how much are you willing to let speculation dictate the direction of your business? Both these issues will be resolved within six months – most mining projects, for example, take 3-4 years (minimum) to go from discovery to commissioning. Why let a short-term fear impact the long-term value of your company?
When engaging in a transaction, a focus on the immediate, tangible value of an asset needs to be maintained alongside a long-term vision for what this deal means. Sitting back and waiting for the fog to clear can paralyse a company and, in turn, make them into a takeover target.
Communication plays a crucial role in any corporate transaction, but for communication to be effective the recipients of this information need to be identified. Once the concerns and desires of each stakeholder group is understood, communication can be crafted to meet their needs. This becomes vitally important if defending against a takeover.
Often the desires of shareholders are overlooked, or assumed to be obvious (i.e. receiving the highest possible return on investment). As a result, they can be neglected while the transaction is underway and once the deal is closed are left wondering what the next steps are.
Rod Sims has indicated that he will be taking a stronger stance on M&A activity this year, particularly around how companies articulate the value of a target asset. There is a suggestion that in recent transactions only part of the true intention behind an acquisition was communicated to the market. Value needs to be shared or else a bid may be viewed as opportunistic, creating a significant headwind from media, shareholders and regulators alike.
Given the prevalence of activism, and the tightening standards around deal-making, why risk a delay by not adequately articulating the value generated for each stakeholder?
Successful communication has always been integral to M&A yet given the backdrop of the last 12 months, its importance in closing the deal is further enhanced.