The Value of Transparency in Dealing with a Merger & Acquisition
The recent news that Anglo-Irish pharmaceutical company Shire has launched an unsolicited $30 Bn bid for US drugmaker, Baxalta, is just the latest in a global wave of hostile takeovers. Indeed, according to an article in the Financial Times by James Fontanella-Khan, we are in the midst of a US hostile takeover boom, with a 43% increase in year on year unsolicited takeover activity. Surprising when you consider that with most deals of this kind the shareholders lose out — some 70-90% of hostile takeovers fail, and most destroy value.
However, while the targets of an unwanted approach seem destined to take a hit whatever the outcome, there is some encouraging news. With the right approach it may be possible to stave off the advances of an unwelcome suitor and still emerge in reasonable shape. In today’s “creative economy”, where the organization is totally focused on delighting their customers and users, transparency may prove to be the key to better takeover decision-making, more ethical conduct, and the preservation of value.
Take some hostile takeovers that recently played out in the executive recruitment business. Executive recruiting is big business world-wide. The Association of Executive Search and Leadership Consultants reports a 10.7% annual rise in revenue and industry revenues of $11.7 billion world-wide so there’s a lot at stake. Global search firm CTPartners was known as a disruptive innovator in its sector. It had taken client transparency and accountability to levels previously unseen in the somewhat secretive world of senior level search – openly disclosing its performance statistics including the average number of days to fill a position and the percentage of candidates still employed 18 months later.
Whilst this transparent approach may have differentiated CTPartners, it wasn’t enough to save the company when it became the acquisition target of privately owned, DHR International. Top revenue generating employees departed, triggering a default clause and depleting the firm’s value. The last day for all former CTPartner employees was June 30, 2015 and the stock has since been delisted from the NYSE.
As was the case with CTPartners, all employees have the power to vote with their feet, leaving hostile takeover proponents facing the added complication that ownership does not guarantee retained value post purchase. It’s a reality reflecting the complexity of people and character of the respective business cultures in the acquisition. Expect collisions. While some would say it’s the ‘survival of the fittest’, in the creative economy the ‘fittest’ keep the talent.
People either impacted by the CTPartners takeover, or learning from it, had access to a site dedicated to assembling publicly available information on DHR. Here, transparency played a part in shining the spotlight on what was going on behind the scenes, including issues that were not being discussed in the mainstream media.
Immediately after the demise of CTPartners, DHR International targeted another publicly listed executive search firm, Caldwell Partners. Transparency played a different role in this instance – this time as a strategic tool to defend a company in a hostile takeover situation. Caldwell countered with a unified position, by being very frank about how their people felt about joining DHR.
In a people business valued talent walks in and out of the door each day. In the creative economy, trust is the glue that advances credibility and capacity to adapt through the engagement of top talent. Transparency attracts trust.
Caldwell issued a letter from their 37 Partners directly to DHR conveying their response directly: “Our partners have expressed to us their significant concern and have made it clear that they would not be willing to be part of a firm controlled by DHR.” Shortly after, Caldwell issued another press release this time including one from the Board of Directors leaving no doubt about the strength of Caldwell’s position. To quote Caldwell Partners, “The bottom line is, we love our firm, we love our leadership, and we love our incentives and do not want to see any changes in either ownership or structure that will take away what we see as a very bright future that does not include any involvement with DHR.”
Following receipt of both public letters, on July 30, 2015 DHR officially disengaged.
Caldwell’s approach shows it is capable of navigating the choppy waters between the traditional and the creative economy. Their unified position, backed up by clarity of their values, left no opening to lever a weakness. To stay strong, a company must be able to make values-based decisions in partnership with their shareholders, Board and Partners as well as all key stakeholders and to operate at all times in a way that is authentic and transparent.
In a hostile bid situation, where aligning the cultures and values of both organizations is key, transparency enables top talent to decide whether or not it’s a match made in heaven. The old days of assuming you can buy a company’s talent intact and expect to expand through acquisition are over.
In today’s creative economy the value of customer service, truth and transparency, employee engagement and outstanding customer relationships come first. Decision makers are becoming more discerning, knowing that value is influenced by the company they keep and by customer loyalty. Creating value, only to sell and see it destroyed shortly after, has worn out as an exit strategy. Bart Houlahan, co-founder of B-Corporation, was inspired to start B-Corporations (B=Benefit) to counter that experience after selling his company AND 1. If a company wants to retain the exceptionally creative millennial generation, transparency and ethical integrity is a requirement.
Top talent is discerning about the type of companies they will work for knowing that personal reputation, well-being and happiness is entangled with corporate actions. The degree of transparency a company lives by is one indicator of their values. Will it be the deciding factor behind which companies successfully transit from the old to the creative economy and which ones fail?
Dawna Jones offers a sounding board – mentoring service for executives and change agents seeking insights and ways to better navigate difficult dynamics, particularly collisions between traditional thinking and what’s needed to adapt. Think of it as cultural oversight. Logically, risk exposure is reduced by engaging creativity and deeper intelligences.
Workshops focus on the advanced decision-making skills and elevated awareness required for seeing through complexity to expand flexibility and perception. Contact Me to discuss the value of following through on merger and acquisition promises.