S4 E8: Communication Best Practices for M&A Deal Success with Brad Kostka

Adrian McIntyre: 00:00

From the Public Relations Global Network, this is PRGN Presents. I'm Adrian McIntyre.

Abbie Fink: 00:07

And I'm Abbie Fink, president of HMA Public Relations in Phoenix, Arizona and a founding member of PRGN. With public relations leaders embedded into the fabric of the communities we serve, clients hire our agencies for the local knowledge, expertise, and connections in markets spanning six continents across the world.

Adrian McIntyre: 00:28

Our guests on this biweekly podcast series are all members of the Public Relations Global Network. They discuss such topics as the importance of sustainability and Environmental, Social, and Governance programs, crisis communications, content marketing, reputation management, and outside of the box thinking for growing your business.

Abbie Fink: 00:48

For more information about PRGN and our members, please visit prgn.com. And now, let's meet our guest for this episode.

Brad Kostka: 00:59

Hi, I'm Brad Kostka, president of RoopCo. We're a strategic content marketing and public relations firm located in Cleveland, Ohio. We help our clients amplify their communications by creating greater brand awareness, generating leads, and helping them to drive more sales. And I'm happy to be here today.

Abbie Fink: 01:18

Well, we're happy to have you chat with us on this really interesting topic, mergers and acquisitions, which is not necessarily something that is top of mind when we think about where communication strategies fall into. But it's certainly something that all individuals who are considering buying a company or acquiring a company or someone that is getting themselves ready to be valuable enough to be considered for sale should really be thinking about the messaging that they're putting out there. And where I find it most interesting is that that's a business decision while you're still running your business. So what happens during this mergers and acquisitions M&A process that … how do we advise when we're thinking about communication strategies, knowing that the business has to continue to operate while they're preparing months, years in advance for the eventual sale or purchase?

Brad Kostka: 02:24

Yeah, sure. I thought this was a kind of a good topic because there's a stat out there that says, I don't know, I think it was from Harvard Business Review, somewhere between 70 and 90% of mergers and acquisitions are considered failures. They don't work out as planned. The value is not there or, in the end, it just wasn't worth the effort to do it. And so there's a number of reasons for that and overpaying or other things maybe cultural clash things like that. But communication is also one of the reasons leading into an acquisition that that things don't work out that that the two sides are not communicating clearly or there's just not that level of transparency that's needed to help it drive success. And so that's why I thought this was a good topic and an area that we have a fair amount of experience in. So I wanted to share some of those insights.

Abbie Fink: 03:30

Well, I think that the challenge and you mentioned is that the individual that is preparing for their business to be sold may have an inflated sense of what the value of their business is. Now, there's actual cash value, certainly, and then there's the intangible, the brand, the reputation, the things that are harder to put a price tag on. So I think there's communication with the ownership and really what's reality than externally, right, how they're positioning themselves. So as you're coming into these relationships, and if there is a distinction between the buyer and the seller, if there's a communications difference, but as you're thinking about, and some of the experiences that you've had what things should we be considering if we are entering into this idea that we're ready to sell, or we have it in our growth strategy to merge or acquire a related industry.

Brad Kostka: 04:37

Yeah, sure. So I'd say, yeah, if you're in the selling mode, obviously there's, and I hear of all these situations where someone's thinking like, oh, I've run this business for a long time and I want to retire in six months. And that's usually not realistic. I mean, an investment banker or other M&A advisor will tell you, you generally need some more time to get your ducks in a row and get the business ready for sale. But on the communication side, it's like selling a product or service and it's the same with your business. You have to package up and market your own business and make it attractive to prospective buyers and you have to think about who's the target audience for buying you. Is it a potential competitor or somebody in the industry, a strategic buyer, or there could be opportunity for a private equity firm to come in. Maybe you're a bolt-on to another business, or maybe your business is a platform entity that they're going to look for an opportunity to grow and add other acquisitions onto. And so I think you need to, as a seller, you need to think through those different scenarios and then package up your business accordingly in terms of how you market and communicate the value that you bring. And so it's the people, it's the assets, obviously it's the revenue and the profit that the business generates. But there's also value, I think, in the brand and the product offering. And you can go on and on in terms of what the assets are.

Adrian McIntyre: 06:15

Can we start by level-setting in terms of some timeframes? I imagine, although I don't have direct experience of this kind of process, that there are phases that typically unfold and the communication needs might change during those. But just for starters, could you walk us through at a high level what sort of a time sequence we're talking about?

Brad Kostka: 06:41

There's two different perspectives, again, as an acquirer or an acquiree, right? So I'd say probably more so on the acquirer side, there's a number of phases. There's this kind of deal sourcing phase where you're looking for acquisitions. And so, again, whether you're a corporate strategic acquirer or a private equity firm, it's about how you market yourself as being an acquirer of businesses. For example, we have a client that that we've helped create a reputation for in the acquisition space. They're the best home for entrepreneurial businesses in their industry. Those that are looking to sell are often family, multi-generational businesses, and it's time for them to exit or they want to grow they're ready for the next stage of growth. We've positioned this entity as being a great home for that because they provide all the assets and resources and things that this business needs in order to get to the next level. And that actually helps them attract proprietary deals.

So there are certainly deals that come in through investment bankers and advisors that often it's an auction and maybe a seller is trying to get top dollar but there are those that maybe they just want to find a good home for their business and this is their baby and they grew it and they want to see a good place for their employees and those that are there and they want to see their legacy continue. So if you can build a good reputation in the marketplace as being that home, you can get access to proprietary deals and avoid that auction. Or if you're in the auction process and you make it down to the cut because you're one of those that are willing to pay the right price and it's kind of close, you're going to end up on top because you've got this better brand or reputation in the market as being a better home along with also paying what's the right price or the price that the seller is willing to accept.

That's one phase, and then there's the so now you've found a home and you've agreed to be sold. And then it's this due diligence phase, right? So that's kind of the next one where you're digging through financials, the acquirer is digging through the acquiree’s business. And there has to be a lot of transparency, but there also has to be some confidentiality. You need to know who's inside the tent, who needs to know what's going on through the acquisition process so that there aren't any leaks or rumors or anything like that. And so that's kind of that lead up.

And then once you're about ready to pull the trigger, then there has to be some communication planning leading up to that actual transaction date of closing and announcing the transaction. And so at that stage, it's really important that employees are plugged in first. They're that most important audience they need to know. And if you have any big customers, they need to know as well, so that they don't get spooked by what this might mean for them. And then usually you might roll it out then publicly after those two important audiences have been informed about the transaction. And it's all about what's in it for me. And what does it mean for those different audiences? And it's different things. Employees want to know that their jobs are safe, that there's opportunity for advancement in this new combined entity. Your customers want to know that they're going to continue to keep getting the great products and services that that they were getting before and that and suppliers are important in the communities and so on. So you got to think through all these different audiences and at different stages, you start bringing more people into the fold and informing them about the transaction.

Abbie Fink: 10:55

Well, and I'd like to dig in a little bit more on that part of it. In terms of the timing, that due diligence part is so important, right? That's really where both sides, I think, have to do due diligence, right? Even if you're the seller, you have to understand who's buying you and the buyer certainly has to know what they're purchasing. But there is a very intricate dance that happens during that process where information is being exchanged, but a deal isn't on the table yet. And at what point and when and who do you bring into those conversations?

Because if it is just a investigative stage, you don't want to scare everybody that this big change is happening if it's not real yet. But you also don't want to wait till the ink is dry and then surprise everybody. So I think there's a real interesting dynamic that has to happen there. And ensuring that when you're ready to tell it's going to happen, because you certainly don't want to pull back at that point after you've made a big deal about it. And I'm not sure that there's … I think that that's a question or a discussion that you have based on the culture of your own organization, in terms of when and who gets brought in, if you have other leadership team or the workforce out in the field, when did they have to start telling clients there's a there's a lot of dynamics in that.

Brad Kostka: 12:36

Yeah, absolutely. So I would say it's the closer you get to consummating the deal, the more people that you bring into the fold and inform them. And obviously, the closer that you get to a deal and the more people involved, the more likelihood there is of some of this, the news or information leaking out. But yeah, you have to have trust in your people and you have to build that trust, I think, on both sides of the fence and have a collaborative effort moving through the process. Again, that employee piece is really important. And for bigger entities, obviously, there's going to be an announcement from the top. And the leadership would bring in some of the management, and then that works its way through the organization. And you want to arm or educate those managers or leadership along the way about the transaction when it comes time to announce it so that you get that announcement out from the top but then the frontline managers are prepared to … they have Q & A's or communication materials and things so that they can answer questions. You want to anticipate what those questions are, and you want to give them some talking points so that they can help alleviate any concerns with the frontline employees that weren't actively involved in the process.

Abbie Fink: 14:24

So anyone that's thinking about a merger or an acquisition likely realizes they need an attorney, they need financing, they need the accountant and the tax preparers. But communications advice and counsel should be in that same list. Regardless of the size of your company.

Brad Kostka: 14:52

Absolutely.

Abbie Fink: 14:53

I mean, even if it is just a two-person organization, there's still communication that needs to happen. So in that list of advisors, communications advisors should be in the top of that list. Would you agree?

Brad Kostka: 15:08

Oh, yeah, absolutely. I mean, obviously, I have a biased opinion on that, but I've also seen it or been involved or we've been brought in kind of late in the game. And I would definitely say that if you want to help to assure your transaction success and you don't want to fall on the wrong side of those statistics, definitely having a communication advisor in there, whether it's somebody on your own team that's been involved in this or you get some external support, I think is important. And there needs to be collaboration on both sides. I think that's another miss, too, is that the acquiring company brings in their communication person, but then they never connect with the communication person on the acquiree side. And you really want to be lockstep and working together, especially when it comes to timing and who gets involved and who's at what different stages. You want to have collaboration on both parties involved in the transaction so that it helps to make for a smooth process. And you're both using the same language and it's language that's been agreed upon on both sides so that one side isn't saying something that could upset a customer on the other side or something like that. You really want to be thoughtful and strategic about it for sure.

Adrian McIntyre: 16:38

Thanks for listening to this episode of PRGN Presents, brought to you by the Public Relations Global Network.

Abbie Fink: 16:44

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