At least one Disney fan was not excited when reports surfaced of Walt Disney Co.’s* potential bid for Twitter. “Disney’s brand is about bringing joy and making money – and Twitter can only do one of those things,” my millennial friend texted me. Beauty and the Beast had a happy ending, but observers appear divided on whether these two media giants would make a good marriage (Salesforce* is also said to be among the potential suitors, and it’s not clear which companies will bid, if any).

This gets to the question of what matters for financial audiences when it comes to acquisitions and business transformation. As it turns out, they value the whole picture. A new survey quantifies how investors and analysts consider a broader set of factors for M&A and restructuring success, including innovation, reputation, politics and culture.

Let’s look at three areas, starting with bottom-line business and fundamental factors. If you said synergies and the value potential and strategic rationale of a deal are important for financial audiences, you’d be right according to 85% of survey respondents. No prizes for guessing.

But that’s not what’s most important. Tangible issues closer in to business execution and commercial success ranked higher: Ability to deliver on innovation, customer benefits and revenue growth from M&A is important for 92% of investors and analysts. In fact, 50% ranked it as the most important factor – tied only with ability to retain customers and avoid business disruptions – and ahead of synergies and strategic vision. These customer-facing issues scored even higher (94%) for restructuring and business transformation (See chart).

Figure 1: What Matters for Investors and Analysts in M&A Deals and Business Restructuring**

apco merger research

 

A key takeaway is for companies to go beyond numbers and vision, and go deeper on customer value proposition, innovation potential and competitive advantages. While quantifying revenue growth prospects may be harder, there’s a clear need to educate investors on broader business and customer and stakeholder benefits.

That brings us to political and reputational risk factors in the external landscape. It comes as no surprise that markets weigh the power of regulators to intervene or block a deal and the power of politicians and the media to inflict reputational harm to the business, given the number of transactions that have been delayed or derailed in recent years. Eight in ten (78%) say the risks of regulatory intervention, concessions and cross-border complexity are important for deal-making today, and 71% consider how political interference or media criticism in deal situations could impact deal success and a company’s reputation and license to operate.

Less expected is how investors and analysts look at social good. Two-thirds of those surveyed consider ability to demonstrate broader economic and social benefits of M&A as important, and one in three ranked this as very important. Perhaps they associate the high-scoring innovation factors around M&A with the ability to demonstrate social good. Only a third thought that delivering broader economic and social benefits is of little or no importance in deal situations.

Restructuring is a politically sensitive issue. As it turns out, financial audiences think demonstrating economic and social benefits is more important for restructuring (75%) than for M&A (65%), with one in three saying it’s highly important. Since the 2016 presidential campaigns have criticized corporate America for shipping jobs overseas, we also asked about potential damage to a company's reputation due to relocation of jobs abroad. Two-thirds of investors and analysts said this risk was very or somewhat important.

The third broad area we looked at is cultural and employee factors. These are less tangible and visible to the outside world but financial audiences say they are critical to understanding how a company is executing transformative change. In fact, employee engagement and culture scored higher than the external political and media reactions as key factors.

More than 80% of investors and analysts see a company’s ability to keep employees engaged and integrate an acquired business as important, and half of this group ranked employee engagement as highly important. A similar number see the cultural fit and alignment between partners as important to successful M&A, with one in three saying culture is very important. Understandably, employee engagement scored even higher for restructuring (88%).

Time and time again, corporate reputation research shows financial audiences are not so one-dimensional. As we know, businesses are under pressure to create value through bold moves, but not every story has had a happy ending. The research can help companies going through strategic change understand more fully what matters for financial community stakeholders.

*APCO client
**Results based on an online quantitative survey of 75 institutional investors and sell-side analysts from the US and UK conducted in July 2016 by APCO Insight, a global opinion research group. Respondents were asked, “When thinking about companies that you cover or invest in that are undertaking” a merger or acquisition, or large restructurings and/or business transformation, “how important are the following?”

Zelkowitz_Jeff_fl
Jeff Zelkowitz

Jeff Zelkowitz is senior director and global financial practice leader based in APCO Worldwide’s New York office. Read More