The M&A market is experiencing a highly active period, and it has created a plethora of opportunities for financial and IR agencies to not only take part in the action, but also to drive it.
Hostile takeover attempts may be the most cutthroat version of M&A work. Public statements are carefully calculated, but behind the scenes, communications professionals are figuring out how to turn bared fangs to their own client's advantage.
Mirant, an international power company, sought to bolster its own holdings this year by making an unsolicited bid for NRG, a primarily domestic energy company.
Joele Frank, managing partner of Joele Frank, Wilkinson Brimmer Katcher, who handled NRG's communications work, says Mirant's offer had already been rebuffed in private; but when Mirant went public with its bid, NRG responded by releasing an (originally private) icy letter rejecting the offer and denigrating Mirant's stock as one with "little to no growth opportunity."
"That was a strategy that worked very well," Frank says. "That letter [formed] the basis for the public aspect of the defense."
It soon became clear that Mirant had miscalculated - not only was its proposal slapped down by NRG, but several of its own large shareholders asked the company to abandon the bid. In a mere three weeks, the battle was over.
Citigate Sard Verbinnen, Mirant's agency, declined to comment on the deal.
Frank says the guiding principle of successful deal communications - that a company must have "credibility for do-ability" - is applicable in both friendly deals and in contested ones.
In the case of Mirant and NRG, defense won the day. In fact, Mirant's failed bid helped boost NRG's profile by showing investors that the company was desirable.
M&A is often a game of winners and losers. Luckily for communications firms, there is plenty of work to go around.
"Robust" is the word that seems to be hanging from the lips of the M&A world this summer. The market is robust. Business is robust. And, of course, the competition is still as robust as ever.
According to financial intelligence firm Mergermarket, the first six months of the year saw a total deal value approaching a whopping $700 billion, the most active period since 2003.
Several top agencies, including Brunswick Group, Joele Frank, and Abernathy MacGregor, have followed suit, watching their own deal value in the first half climb by more than 85% each.
The exclusive field, it seems, is still dominated by a relative handful of firms, but new business is keeping them busier on bigger deals than ever.
Comms' expanding scope
While the basic principles remain the same, the scope of agencies' work for corporate clients has expanded. Deals come and go, but M&A communications has become an ongoing process rather than a hit-and-run engagement.
"Clearly, we're in the midst of a very strong and powerful new trend in the global markets, in which corporations are increasingly compelled to merge with each other, to either buy earnings, grow, or buy scale," says Steven Sears, an SVP who leads Manning Selvage & Lee's Capital MS&L in the US. "Business models are changing across the world, and you could put forth a very good case that this may be the first major wave of consolidation in the wake of globalization. Globalization was a concept a few years ago; now it's a reality."
M&A communications pros tend to emphasize that this new global reality has expanded the scope of what was once thought of as a strictly deal-based business. One-off engagements in which firms are brought in a week or two before a merger and let go quickly after the deal closes are giving way, in some quarters, to a broader scope of thinking on what communications can do for a company before, during, and after its normal M&A cycles.
James Fingeroth, a partner at Kekst & Co., a traditional M&A powerhouse, says that his firm views the field as one that permeates every aspect of a client's business. That includes not just clients in the midst of a deal, but those that are "considering their strategic options," dealing with activist shareholders, on the prowl for acquisition targets, or companies that see their own stock price lagging and are trying to devise ways to increase shareholder value without having to buy or get bought out themselves.
"It's a full panoply of corporate strategic actions that have an M&A dimension to them," Fingeroth says, "some of which result in a transaction [and] some of which don't, or result in other sorts of actions."
The belief that most deals will turn out to be failures in the long term is widely subscribed to on Wall Street. Much like the fact that the odds are weighted against you in a casino, it is a truism that still does not stop people from playing the game. But savvy companies are turning to their communications advisors to help them explore alternatives in an active market.
Kekst partner Lissa Perlman says that corporations whose stock prices are stalled often bring in her firm for help.
"If we decide to do a defensive transaction" to boost stock price, Perlman's clients tell her, "we need all of our constituencies to understand the logic behind an inherently irrational transaction."
Such advising work is happening frequently, Perlman says, but "it's not visible because it may not result in a transaction. It may result in increasing [share] repurchase, it may result in a dividend," or a number of other strategic alternatives. In other words, at the highest levels, financial PR agencies are serving in advisory roles equally as important as those of the traditional bankers and lawyers.
"The smartest [clients] are integrating communications into their strategic evaluation of their business and their business alternatives," says Perlman.
Clients, PR pros agree, are more educated today about the implications of M&A communications than they were even five or 10 years ago. The reasons for this are broad: Some surely learned from the failures of the tech boom, while others are educating themselves out of necessity at a time when private equity firms are flush with cash and desperate to find suitable companies to acquire.
A related factor, of course, is the widely noted increase in shareholder activism. This trend, professionals say, applies equally to the traditional types of activists, who agitate based on political goals (such as ExxonMobil's annual meeting), and to full-time private dealmakers and institutional investors who constantly seek to improve companies whose performance or judgment they believe to be weak (such as VNU's attempted $7 billion acquisition of IMS Health, which was scuttled last fall).
"[Shareholders] have been given a voice, and given all the corporate malfeasance, they've been granted an opportunity to speak and be heard," says Hollis Rafkin-Sax, US vice chairman of Financial Dynamics. "A lot of our attention is focused on working with companies on how best to address the particular activists. And they're not all the same, and they don't all want the same [things]."
Perhaps the most significant business trend in the wake of globalization has been the rise of international, cross-border M&As. However, as dealmaking has increased, so have the potential pitfalls.
In the past year, two high-profile attempted acquisitions faced serious political uproars: the Chinese oil company CNOOC's bid for Unocal and Dubai Ports World's bid for control of six US ports. In the wake of those incidents, the already-complicated sphere of cross-border M&A communications has taken on an even more critical set of stakeholders.
"It gives people pause," says Doug Donsky, an MD with Gavin Anderson in New York. "There are a lot of people in the market considering those transactions, but they are moving forward more deliberately in how they want to communicate those."
Because of this, communications surrounding international M&As have taken on a heavier public affairs aspect. Many specialist agencies are already well positioned for the eventuality, with DC offices in place to handle political elements of deals.
"We've always had incredibly high regard for the public affairs perspective [on M&As]," says Rafkin-Sax, noting that Financial Dynamics originally launched its DC office for that reason and recently acquired Dittus Communications to further bolster its capabilities. "If it's a regulated industry, there's just an enormous number of hurdles."
The economic powerhouse that is the Asia-Pacific region continues to drive much dealmaking, giving agencies with a regional presence an advantage.
"A lot of the large agencies are de-emphasizing [M&A communications]," notes Matthew Della Croce, an SVP who heads up Ogilvy PR Worldwide's financial PR practice, "but they're the ones who have offices all over the world. So we have, I think, done better as a result because we can offer cross-border."
Della Croce says that Asian companies eyeing the US for M&A activity are becoming more open to agencies' offerings. While language and cultural barriers used to get in the way, he says, "sophisticated companies that are doing deals cross-border recognize that there is value in the whole communications aspect of the deal process."
Most professionals seem bullish on the prospects of international dealmaking. They note that markets themselves are increasingly globalized and that a more active international sphere of deals could help offset an economic downturn in domestic activity.
"While at one time cross-border transactions were seen as the exception, I think these days they are accepted as part of the routine," notes Kekst's Fingeroth, who says that fact means firms must be ready to deal with the additional complexities that arise as a result of such deals. "The media in different parts of the world work differently," he adds. "The investment community and stock exchanges work differently and have different expectations."
Specialists still on top
With the volume and complexity of M&A communications on the rise, it may be tempting for new firms to consider entering the highly competitive field. But the numbers show that most of the new business seems to be going to the same group of specialist agencies, rather than opening the door for new firms to slip in.
UK powerhouse Finsbury (which ranked sixth on Mergermarket's mid-year value list) recently announced plans to open a US office that will compete for M&A work, but other than that, the established domestic players do not seem to be giving up much ground.
"The market is sufficiently robust that there is more than enough business for everybody that's in it and potentially new entrants," says Adam Miller, president of Abernathy MacGregor. "That said, I think it's a very difficult business to enter... there are real barriers to entry to the business, which are having relationships with the referral sources, and a track record."
Traditionally, Miller points out, M&A communications firms win business through connections to bankers or lawyers involved in deals or through a direct connection with the company. But while the very largest deals often go to the specialist firms, there is business to be had at the lower end of the value spectrum.
Della Croce at Ogilvy notes that non-specialist agencies can win M&A work based on their geographic reach and on their expansive approach to dealmaking - a merger, after all, can provide valuable press coverage for less visible companies.
"We're using it as a selling opportunity in addition to just communicating the financials of the deal," he says. "Our [approach] is more long-term, brand-building based."
At the end of the day, any firm seeking to establish itself as a long-term competitor in M&A communications must be able to perform a host of duties that are much more complex than writing the press release: battling activist shareholders, communicating clearly to audiences in different countries and cultures, and helping companies decide whether a deal will actually hurt them or help them in the long run.
"Whether it's defense or offense, you want to make sure that every one of your constituencies has a really intimate understanding of your business strategy," says Kekst's Perlman. "Because that's what builds credibility for management - and that's the only thing that can help you, whether you're an acquirer or an acquiree."
Mergermarket's top five for the first half of 2006
Key player: Steve Lipin, US senior partner
2006 first-half value Mergermarket rank: No. 1 ($182 billion)
Citigate Sard Verbinnen
Key player: George Sard, chairman and CEO; Paul Verbinnen, president
Key deals: Whirlpool-Maytag; Kerr-McGee-Anadarko Petroleum
2006 first-half value Mergermarket rank: No. 2 ($121.4 billion)
Kekst & Co.
Key player: Gershon Kekst, founding partner
Key deals: Lucent-Alcatel; Albertsons' buyout by private equity
2006 first-half value Mergermarket rank: No. 3 ($102.2 billion)
Joele Frank, Wilkinson Brimmer Katcher
Key player: Joele Frank, managing partner
Key deals: Guidant-Boston Scientific; Oracle-PeopleSoft
2006 first-half value Mergermarket rank: No. 4 ($73 billion)
Abernathy MacGregor Group
Key player: James Abernathy, chairman and CEO; James MacGregor, vice chairman
Key deals: Golden West Financial-Wachovia; Lucent-Alcatel
2006 first-half value Mergermarket rank: No. 5 ($69.3 billion)