How Communications Can Support Mergers and Acquisitions

Merger-and-AcquisitionWith mergers and acquisitions (M&A) in the pharmaceutical sector showing no signs of slowing down, there has been criticism of some deals in recent years. These acts of consolidation don’t always reap the fruits they set out to bear and, if not managed well, may even result in a stifling of innovation, reduction in R&D productivity and decreased value of the company.

In a recent study as part of an MBA project, a survey and interviews were conducted among a sample of biotechnology and pharmaceutical company employees with experience of M&A deals, to find out their thoughts about communications during the M&A process.

Deal-making in the pharmaceutical sector is seen as a means of growth and competitive advantage through, for example, access to new markets or geographies; growth in R&D pipelines; access to scientific expertise in a given therapy or technology area; access to sales and marketing expertise; complementary skills and company synergies. The last few years have seen big pharma facing thinning pipelines and patent expiries, and for some, M&A activity is a means of gaining additional assets, innovation and technologies.

M&A activity has swept the industry, leading to some large and high-profile deals.  Despite the urge to merge, studies show that failure rates for M&As in general are high. Reasons cited for failures include poor corporate governance, poor valuation of the acquired firm, and bad post-acquisition management, including poor communication with employees and mismanaged integration of staff and departments.

Survey findings

In the 70-person survey of pharma and biotech employees with experience of M&A, 92% of respondents said their company had previous experience of M&A within the organization, with 57% saying further M&A was planned within the next 12 months.

The main reasons given for the deals were: access to R&D or pipeline, company growth or defense, entry to new areas or markets, and entry to new product areas. Some 52% of respondents said there had been some restructuring or significant restructuring of their part of the business post-M&A.

In describing the cultures of the two organizations in the M&A, 59% of respondents said the cultures were different or totally different, with 88% of respondents saying they believed it is important to create a company with common values and behaviors for M&A success.

As shown in table 1, survey respondents felt that communication with staff was deemed important for a variety of outcomes, including productivity, staff satisfaction and shareholder value.

Table 1: Summary of survey responses to importance of communications for different outcomes

Extremely important Very important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important
Staff satisfaction 40%  40% 15% 1.9% 0  1.9%
Productivity 40% 40% 9.6% 3.8% 1.9% 3.8%
Shareholder value 43% 30% 19% 1.88% 0 5.7%
Reducing levels of uncertainty 26% 52% 13% 0 4.3% 4.3%
Setting your own expectations 8.7% 39% 26% 13% 4.3% 8.7%

Talking to staff is not always a priority when doing a deal. As one interviewee commented, “The main focus is the deal itself and the financial benefits, synergies and scale. Companies don’t always think about the broader implications beyond this, so insufficient attention is paid to the communications imperatives of creating a new entity.”

“Communicating with external stakeholders—especially shareholders—is prioritized in M&A. I have heard cases where employees first knew of a merger of their company by reading it in the business press.”

Some pharma mergers have seen clashes at different levels especially where the companies coming together have very different cultures and one or the other has to completely change. Communicating about the reasons for the deal can help to gain staff buy-in and support during the M&A process, despite the accompanying uncertainties of change. It can help employees to establish an identity with and a commitment to the new organization.

But creating a single, strong company culture is not the only option. Some companies have maintained the different cultures of their separate organizations to support innovation and productivity from each company.

In the survey, all of the interviewees agreed that in order to reduce the high levels of uncertainty and rumors that tend to develop among employees during M&A, internal communication is vital. They also agreed that communication with employees can support integration, improve staff productivity and help to achieve better M&A outcomes.

“Without employee communications, the water cooler conversations take over. Employees become disengaged, motivation falls and no work is done, driving business performance through the floor.”

“If you don’t communicate, it is mayhem,” said a former Communications Head of a large pharmaceutical company. “All other things being equal, without a planned internal communications program, the desired M&A outcomes will be much more difficult to achieve.”

The survey respondents said the most commonly used forms of communicating with staff were company-wide meetings, written communications such as emails and newsletters, and team and individual meetings.

Graph 1: Communications tools used during M&A

chart

All other things being equal, communicating with staff about the rationale for the deal, the next steps post-merger and what the company changes mean for staff can support the success of a deal.

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