From middle-market boutiques to the industry’s best-known names, private equity firms have embraced add-on acquisitions as a core value-building strategy.
The business case for add-ons is clear: They are a smart way to deploy dry powder at times when deal multiples are high. But in order to maximize the benefits of add-ons, sponsors must ensure that a deal makes strategic and financial sense, have confidence in the leadership of the companies involved and, crucially, be ready to address the post-merger complexities of integrating business cultures, people and brands.
Communications has an essential role to play throughout the add-on process, including helping sponsors articulate the rationale behind their transaction, facilitating the delicate integration of companies, and enhancing operational efficiencies and synergies required for the strategy to succeed. Effective communications can also burnish a firm’s reputation in an increasingly crowded marketplace.
Fund managers pursuing add-on strategies should consider the following communications best practices:
- Engage with Every Stakeholder in the Merger: Executed well, a merger communications plan takes an inherently disruptive activity and ensures it is achieved as smoothly as possible. Failure to do so can result in inaccurate news coverage, confused employees, and a lack of buy-in from key stakeholders, including customers, partners or suppliers. Working with both companies’ senior management, sponsors should establish the rationale for every merger well in advance of the planned date and create a comprehensive announcement strategy that streamlines the release of pertinent information to employees, investors, commercial audiences, regulators and key media at appropriate times. The process is more in-depth and requires more precision than many fund managers might realize, but it is essential for enabling success from the earliest stage of integration.
- Invest in Employee Communications: Certain add-on approaches require a lighter touch, such as allowing a strong degree of autonomy within individual operations, but most require a full-scale post-merger integration communications plan. A well-informed and engaged workforce is essential. After all, streamlined operations and newly implemented technologies still require an informed, committed and trustful workforce to maximize effectiveness.
And while external communications and perception are important, so too are the experiences, behaviors and mindsets of employees. A unified and inspired workforce, aligned on their mission, is a driver of optimal business performance. Applying a cadence of strategy-focused employee communications within a newly combined entity should be a priority for management teams. Important tactics include regular pulse checks and employee surveys, town hall meetings and other opportunities for employees to engage face-to-face with management.
- Highlight Your Success: Add-on approaches naturally take more time and effort by the fund management team to ensure the required value is realized. This sweat equity should be documented for the firm’s benefit. Creating a company that becomes a disruptor or sector leader is a proof point that private equity is more than just capital; it is evidence of a true partnership model that drives long-term value – a distinction that can elevate an investment firm’s brand and provide an edge during competition for future deals. These proof points should be captured in case studies and shared with both existing limited partners and through an optimal mix of external communications channels – traditional, digital and social media – to showcase your success.
Many private equity firms still only consider portfolio-level communications in three instances: initial transaction, crisis communications and exit announcement. This is a missed opportunity at both an operational and reputational level. Creating a robust internal and external communications program, with shared responsibilities expected at the firm and company level, strengthens portfolio companies’ processes and ultimately allows them to become a firm’s best advocates.
Private equity’s unprecedented foray into add-on strategies make it an opportune time to introduce a holistic communications function in line with their value creation thesis.
Chad Tendler is executive vice president, Financial Communications & Capital Markets.
Brittany Cash is vice president, Financial Communications & Capital Markets.