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Sep 30, 2009

M&A focus: Advice to IROs

IROs are vital when it comes to informing investors of a deal or blocking a hostile bidder.


The M&A waiting game continues. Deal activity has been low all year, and there was little chance of it picking up over the summer months, with executives and bankers off sunning themselves during July and August. Now, with posteriors back on office seats and equity markets still buoyant, we might finally see some action.

That means now is perhaps a good time for IROs to brush up on their M&A skills. Of course, IR teams don’t usually negotiate the terms or help set the price. But communicating the value of a deal – to both existing investors and the wider market – or seeing off a hostile bidder are both vital parts of the process. Here are some tips for gearing up to an autumn of M&A action:

Watch the bankers. They make the deal happen, but they can also be pretty troublesome. Don’t let them write you a strategy that doesn’t chime with what you’ve been telling your shareholders for the last two or three years. Fund managers will notice this kind of spurious activity.

Squeeze the sell side. For many of the bulge-bracket investment banks, business is largely back to normal, but the same cannot be said of the M&A world. Revenues from this area are tiny compared with what they were in the bull market of the mid-2000s, and competition between the players that remain is fierce.

As one IR professional recently said, there’s nothing like a bit of competition, so get those sell-siders to organize roadshows, carry out market intelligence, provide feedback and anything else you can think of that might be useful.

Bag a blue chip early. Bring round your main investors first and the smaller ones are likely to follow. Getting a big shareholder to commit early as well as back the move with fresh capital will give the deal plenty of momentum and might help head off any trouble from objecting activists. It may be worth hiring a proxy solicitation firm to monitor how things are progressing.

Know your role. Usually, deals take many months of preparation. For a start, there’s all the paperwork, such as legal documents and prospectuses. Once the deal is announced, the company will probably be on the road for a couple of months, which the IRO may help coordinate. New presentations with the requisite slides and Q&A preparation will also be needed, so sort out early who’s doing what, and when.

Some IROs have official responsibility for M&A as well as investor relations. Such was the case for Magyar Telekom’s Szabolcs Czenthe before his promotion this year to director of capital markets.

While in charge of IR and M&A, Czenthe’s duties included estimating project budgets, doing due diligence, running models, preparing documents and negotiating with the seller. 

Get the story straight. Put together a picture of where the combined company will be in two or three years. But don’t overcomplicate with details: the more complex the synergies, the more likely investors will get shifty.

It can help to point out that, statistically, bear market deals tend to outperform the market, while bull market deals usually lag. (Notwithstanding the egregious tie-ups between certain banks toward the end of last year.) Make sure your shareholders understand this.