planning for the future

What’s On the Agenda for 2022?

If you’re like me, you’ve probably seen, heard, and read one too many articles about trends for 2022. I even published a 2022 trend article myself. And as much as I enjoy thinking about and planning for the future with Audacia’s incredible clients, I’m also a realist.

Has anyone effectively predicted anything during the past two years? Fortunately, we don’t need to predict the future to build a solid strategy. What if we, instead, accepted the uncertainty and focused on building flexibility and the capacity for resilience inside our organizations?

With this in mind, let’s discuss what’s in, what’s out, and preview the flexible plan we’re implementing at Audacia Strategies this year.

What’s In

As we continue to watch workplaces shift and organizations rethink how productivity happens, some corporate culture trends have real staying power.

1. Building corporate trust.

The pandemic continues to erode public trust in large institutions. Early last year, when we were mostly feeling optimistic about a swift return to normalcy, we talked about ways corporations could begin rebuilding trust. Back then, public trust of businesses stood at 61%, higher than any other institution, according to Edelman’s Trust Barometer.

Now, after enduring another year of working from home and dealing with the uncertainty of the delta and omicron variants, many of us have given up on the concept of “a return to normalcy” entirely. And the 2022 Edelman Trust Barometer reveals that business holds onto its position as the most trusted institution, with even greater expectations due to government’s failure to lead during the pandemic.

Here are some of the key findings:

  • By an average of a five-to-one margin, respondents in the 28 countries surveyed want business to play a larger role on climate change, economic inequality, workforce re-skilling and addressing racial injustice. 
  • All stakeholders want business to fill the void, with nearly 60% of consumers buying brands based on their values and beliefs, almost 6 in 10 employees choosing a workplace based on shared values and expecting their CEO to take a stand on societal issues, and 64% of investors looking to back businesses aligned with their values. 

“Business must now be the stabilizing force delivering tangible action and results on society’s most critical issues,” said Richard Edelman, CEO of Edelman. “Societal leadership is now a core function of business.”

2. Establishing credibility as a trusted information source.

The 2022 Trust Barometer also revealed that trust in news and information sources has eroded over the past decade. Trust in all news sources has dropped (with the exception of owned media, which rose one point to 43%). Social media experienced the sharpest decline at eight points to 37%, followed by traditional media dropping five points to 57%.

In addition, concern over fake news being used as a weapon has risen to an all-time high of 76%. And the most credible source of information is communications from ‘My Employer’ (65%). 

Clearly, trust is at a premium now, which means there’s also a huge opportunity for organizations to establish credibility as a source of reliable information. Doing so will likely require skillful repetition of the truth and transparency in your internal and external communications.

It’s more difficult than ever for consumers to sift through all the available content and find useful information. Making increasing trust a part of your firms’ strategic plan in 2022 could be a serious differentiator.

3. Staying nimble.

Also, with all the challenges to public trust and uncertainty in the air, perhaps the best strategy for thriving in 2022 is to stay nimble. Where can you keep your strategic options open?

If you’re working on an M&A deal this year, for example, positioning your organization for the sale is key:

  • As your business model and corporate strategy shift with the times, you may need to re-evaluate how M&A fits.
  • Keep in mind that there are more options for M&A available now, such as SPACs and other non-traditional financial configurations.
  • Make sure your due diligence covers more than just the financials. The unfolding of the criminal trial and conviction of Elizabeth Holmes, CEO of the debunked medical startup, Theranos, has driven home this point. Many Theranos investors have been criticized for not doing the proper due diligence.

What’s Out

With the above in mind, let’s turn to what’s striking a discordant note with consumers, investors, and trend-setters.

1. Overpaying for an acquisition.

We’ve seen some of the highest M&A deal volumes ever in the past year, and multiples are at record highs. Still, the M&A market remains competitive. While many deals are worth the multiple, there’s no good reason to overpay for an acquisition. 

In fact, we see firms making this mistake for a variety of reasons:

  • Deal fever: It’s easy to get caught up in the excitement of a bidding war. Instead, be willing to walk away from a deal that doesn’t really work.
  • Cutting corners on due diligence: Due diligence is like going to the dentist. If you don’t do the preventative work, you may end up needing a root canal.
  • Not getting real about your competition: The deal will have ripple effects. Do your best to anticipate how it will affect your competitors and the market in general.
  • Getting entranced by “synergies” [or insert your favorite buzzword]: Don’t fall for talk that sounds good but isn’t backed up by substance. Always have a gut check strategy.

What we recommend: A comprehensive integration strategy that goes beyond IT systems and benefits (both vital!) and addresses culture, leadership style, behavior expectations, and just plain “what’s in it for me?” And by the way, this comprehensive integration strategy should include perspectives from employees, customers, and investors.

Consider one of my favorite quotes from Dan Doran: “Value is analyzed, price is negotiated.” Write it down on a sticky note and keep it top of mind for deal negotiations.

2. Mixed messages to employees and customers.

Remember how we’re inundated with information and unsure whether we can trust any of it? Well, one thing that contributes to this paucity of trust is mixed messages. So replace complex, inconsistent, and vague messages with simple, consistent, and transparent communications.

And also, it can’t hurt to approach all messaging with a healthy dose of realism and empathy. For many, January 2022 feels an awful lot like April 2020. Pandemic fatigue is at an epic level and right now it’s hard to be an employee, a leader, a customer, an investor, a parent, a kid, a teacher, a doctor, a nurse…a human.

3. Everything being a top priority.

With everything we have to deal with on a daily basis, we don’t need the added burden of everything feeling urgent. So it’s best to think extra carefully about your real top priorities as an organization. 

Employee burnout is real. Customer burnout is real. No one has the patience to discern what’s a true priority. If you treat every task or project as if it’s Defcon Level 5, you’re likely to invoke a fight, flight, or freeze response.

Instead, pick your top goals, staff out each project appropriately, and give realistic deadlines, all with team input. Then maintain productivity by communicating your priorities and why to all levels and all stakeholders.

What We’re Doing at Audacia Strategies

Of course, by now, you know we at Audacia are always thinking about how we can walk our talk and 2022 is no exception. 

Here’s what we’re doing to build flexibility and the capacity for resilience:

  • Lots of deep breaths.
  • One of our guiding principles: Start with empathy.
  • Recommitting to our values and actively building our culture around them.
  • Focusing on prioritizing our business investments: We’re doubling down on what has worked by augmenting our offerings and building our capacity to support executive transitions, exits (IPOs, M&A), and refreshed marketing positioning.
  • Focusing on building our kick*ss team: We are proud to work with professionals who are the best of the best in their field, highly respected, customer-focused, awesome people with a fabulous sense of humor, and are no bullsh*t team players. We’ve already announced that IR pro, Mike Pici, joined the leadership team, and you can check out our team page to find out more about our strategic partnerships.
  • More deep breaths…

If the question of building a solid strategy amidst chaos and uncertainty has your organization reaching for the Magic Eight Ball, contact us instead to schedule a consultation

We haven’t been able to predict the future (yet!), but we do help clients develop strategies for dealing with anticipated and unanticipated transformations, and we can do the same for your organization.

Photo credit: Business Colleagues Having A Meeting Discussing Graphs And Figures by Flamingo Images from NounProject.com

M&A trends 2022

Considering an M&A Deal in 2022? Keep an Eye on These Trends

With 2021 firmly in the rearview mirror, now is a good time to explore the merger and acquisition (M&A) outlook for 2022. After an historic year, fueled by a backlog of deals from 2020, soaring global markets, plenty of access to capital, advantageous changes to tax rates, and attractive valuations, investment professionals expect a still active but cooler market in 2022.

While many of the factors that contributed to global M&A volumes topping $5 trillion for the first time remain in play, they are less pronounced. And dealmakers agree that deal volume peaked in August of 2021. This coupled with the likely rise of interest rates this year, which will increase the cost of debt, could impact valuations and slow deal volume.

Despite these potential headwinds, if you’re considering launching an M&A deal on either the buy or sell side in Q1 or Q2 of 2022, you’ll likely find a busy dealmaking environment. So let’s discuss the M&A outlook and what to watch as you prepare your materials.

Takeaways from 2021 M&A Activity

During a panel discussion at the end of last year, my fellow panelists and I discussed strategic M&A opportunities for investors and the M&A outlook for 2022. To watch the full panel discussion, click here.

As we kept an eye on deals playing out at the end of 2021, here are our biggest takeaways:

  • Private equity will continue to play a huge role: Private equity firms played a huge role in M&A deals in 2021 and will continue to do so. According to one report, private equity now accounts for 30% of M&A activity. This makes sense because with the market surge, private investors have a record amount of dry powder (capital) available.
  • Valuation/multiples have been climbing but will likely level out: Most M&A professionals believe that valuations in several sectors have reached their peak — or are borderline frothy. It’s hard to envision a scenario where valuations would be significantly higher a year from now and likewise, few see valuations dropping significantly. Experts expect valuations to settle at a sustainable level in the next few months.
  • More selective deal strategies are on the horizon: While few practitioners expect a slowdown of the M&A market, many see more selective deal strategies on the horizon. We’ll likely see megadeals playing a transformational role and smaller, tuck-in acquisitions playing an increasingly important role for small- and medium-sized companies looking to build and scale capacity quickly with less integration risk.

Key Differentiators Remain

Looking at the big picture, key differentiators remain. Whether you are on the buy side or the sell side, you and your team will want to keep the following in mind:

1. Integration matters.

If you aren’t looking past the deal to the future, then you will be at a distinct disadvantage when negotiating. On the buyside, you’ll want to be ready to share your integration plan. Show your awareness of everything from projected revenues to cultural implications to talent management. Changes to the labor market, for example, could complicate your deal. Be ready to prove that you’re aware of these details.

On the sellside, you’ll want to make integration easy to whatever extent is possible. Identify and mitigate key risks early both in the external competitive market and in the internal workings of the company. In addition to risk mitigation, look for opportunities to create value. Be prepared to talk about how you can add value and the quickest path to increased profits as you see it.

2. Keep non-financial due diligence on your radar.

The M&A outlook also reminds us that there are a lot of factors that can affect deal success and financial performance, but which are non-financial in nature. In fact, 70-90% of M&A deals fail due to non-financial aspects. 

Show your deal partners that you know where the non-financial risks and opportunities lie for your brand. Dig deep into factors such as executive reputation, employee sentiment, culture, and communication style.

Management’s credibility is also important to convey. Develop your story connecting your managers and executives to the company’s mission, vision, and values. The more you can show leadership as standing strong together, the better your prospects for closing a great deal.

3. Pay attention to middle management.

More often than not, middle management — as opposed to the C-suite — controls the narrative for employees and customers. Because managers are often more accessible and work more closely with these stakeholders, they are trusted. So, you’ll want to give middle managers the same attention you give to executives.

According to Sarah Gershman, Executive Speech Coach, CEO of Green Room Speakers, and one of Audacia’s partners, it’s important for middle managers to feel prepared to communicate appropriately throughout the deal process. “Middle managers spend most of their time interfacing with customers and doing the work,” says Sarah. “And telling the story of the merger doesn’t come naturally when you’re in the weeds. So it’s a smart idea to find an expert who can help middle management understand and empathize with their audience.”

Beyond prepared remarks, there will be questions and plenty of uncertainty. Managers are the first line of defense in helping to stabilize nerves, and they are your best line of offense in sharing enthusiasm for the next step of this transformative event. That said, the key when answering questions is to show that you understand the question. “Deep listening is a critical skill here,” says Sarah. “You want to listen not only to hear the question, but also to understand what’s behind the question and what’s at stake.”

What if someone asks a question and you don’t know the answer? According to Sarah, as long as you have demonstrated that you have really heard the question, you can feel empowered to say the magic words, “I don’t know. Let me check on that and get back to you.” Remember, it is always better to share authentic and accurate information than incorrect information or speculation.

4. Clearly articulate the narrative.

For both the buyer and seller, it is essential to be able to articulate the narrative around why this deal, why now, and why this property is best in XYZ hands. “Keep in mind,” says Sarah, “people have spoken and unspoken needs.” Unspoken needs are usually driven by emotions, like fear. To clearly articulate your narrative, you need to drill down and find the precise emotion you’re after. “If you want to inspire your audience, that’s different from motivating them or energizing them.” 

With an M&A deal, addressing the other side’s unspoken needs goes far beyond explaining your unique capabilities and differentiated IP. You must also be able to demonstrate an understanding of your company’s markets, customers, opportunities, and competitive pressures. And telling the story of your company’s value within the context of the deal is key.

The bottom line: Despite the headwinds identified, the M&A outlook for 2022 is very good.

If you’re ready to ride the M&A wave this year, you need the right partners by your side. At Audacia Strategies, we’re prepared to work with you and your team as you navigate the next big deal. Contact us to discuss your M&A strategy.

Photo credit: Modern Businesspeople Having A Video Conference In A Boardroom by Jacob Lund Photography from NounProject.com

M&A deals

Over 70% of M&A Deals Fail to Meet Their Goals — Beat the Odds With These 5 tips

The last time we talked about M&A deals here on the blog, we were all wondering how the pandemic would affect the economy and watching some of the biggest players abandon deals in the pipeline or take the Covid chaos as an opportunity to get into the game. 

While the pace of recovery has varied among companies and sectors in 2021, U.S. deal volume and value are up from 2020 numbers and forecasted to continue to rise. Meanwhile global mergers and acquisitions for the first half of the year totaled a record $2.4 trillion, up 158% for the same period last year.

But even as the numbers continue to rise and many organizations sharpen their knives, M&A deals have also gotten more complicated. Let’s look at the why and how these changes should influence your approach to due diligence.

3 Major Changes Afoot

In recent years, M&A has become something akin to 3-dimensional chess (if players could constantly enter and exit and the rules were also a moving target). Three major changes contribute to the increasing complexity.

1. COVID-19 has hastened disruptive trends.

First, COVID-19 has hastened pre-existing disruptive trends across industries, drawing a clear bright line between business models that will succeed in the future and those that are outmoded. Rather than looking merely to deals that will create scale and cost synergies within an industry, organizations are looking to increase scope and add new capabilities, especially in technology, proprietary data, or scarce talent.

2. The M&A process is faster and more complex.

Second, the M&A process has become faster and more complex. Whereas corporate acquirers have always had the upper hand with deeper pockets and M&A deal experts to lean on, private equity players are giving them a run for their money. Nearly every deal is now an auction. Access to debt capital has been a nonissue during this crisis, so competition for attractive, high-growth assets is higher than ever. 

Add to this mix access to data, broadening regulatory scrutiny of deals on the basis of national interest, and a flood of major technology companies. Consider, for example, the involvement of Amnesty International in the Google, Fitbit deal. The organization sent a letter to E.U. regulators, arguing that they should block the deal unless Google addresses human rights issues like the right to privacy and nondiscrimination. Evaluating the environmental, social, and governance (ESG) impact is becoming an integral part of the diligence process. For many looking to make a deal, this is new territory.

3. COVID-19 has forced organizations to adapt their M&A deals.

Finally, COVID-19 has forced organizations to adapt quickly in a myriad of ways and M&A is no exception. In a 2020 Bain & Company survey of M&A practitioners, 70% of respondents reported that diligence was more challenging during the pandemic and 50% found it harder to close deals. Companies that adapted quickly, developing capabilities in virtual diligence and virtual integration, have made great strides.

The use of data in the M&A process is another differentiating factor. Smart M&A teams are leveraging data (and sometimes artificial intelligence) to screen for targets and create profiles, so they are ready even before targets come to market. During diligence, companies are using digital platforms to perform risk analysis and generate customer insights among other data collection to give themselves an edge.

As companies rewrite their M&A strategies for a post-pandemic world, some of the principles of what a good deal looks like still hold true. The most astute M&A teams understand the importance of proper planning and forethought in the months, weeks, and days before an acquisition. And they understand that due diligence goes well beyond the financials.

Beyond Financial Due Diligence

Given the above changes and the likelihood that M&A will continue to play an increasing role in revenue growth for years to come, it pays for leaders to get clear about their own approach to due diligence. In particular, it’s critical for organizations not to overlook the non-financial aspects of due diligence.

Now, don’t get me wrong. We aren’t trying to downplay the importance of financial due diligence. You need to run the numbers and they absolutely need to make sense. Still, all too often it’s non-financial factors that we see tripping up M&A deals. 

By non-financial due diligence, we have in mind:

  • Is this merger the right cultural fit for your organization? And, do you have a strategy for cultural integration once the deal closes?
  • Do you have a solid, agile, proactive M&A team in place and ready to jump into action when the right deal opportunity comes along?
  • Is this deal really the right deal showing up at the right time or are you suffering from deal fever?
  • Have you considered the intangibles? Here I mean variables like corporate reputation, brand promise, employee sentiment, and customer engagement? 

What can you do to position your organization for future M&A success?

We see five things leaders can do to equip their organizations for future M&A success:

Re-evaluate how M&A fits into your broader business strategy. As your business model shifts and you revise your corporate strategy, you will also need to update your M&A team’s goals. How has the pandemic affected your industry and sector? Does this change where to buy vs. build to remain competitive?

Consider non-traditional M&A. One of the ways in which M&A is changing is that companies are getting creative. Many are using a combination of joint ventures (JV’s), partnerships (with or without equity, with or without financial sponsorship), and corporate venture capital to tailor deals and integration. Also, organizations are partnering with other companies to explore opportunities for mergers and acquisitions. This lowers the risk and increases the likelihood of selecting the right deal.

Bring expertise into the process early. Given the growth in speed, scope, and capability deals, specialized expertise early on can help organizations better gauge fit. When you work with an external team like Audacia Strategies during the diligence process or even before, you get a set of eyes and ears in the room as an extra “gut check.” We know the transaction cycles, value creation opportunities — and how to avoid the trapdoors.  

Know the lay of the land and be ready to spring into action. The fierce competition for deals means that firms can no longer wait for bankers to come to them or rely on a singular source of deal intelligence. Companies need to continually scan the industry landscape, see how it’s evolving, and be ready to focus when an opportunity arises. Establish an ecosystem of external partners (bankers, tax and legal advisors, private equity experts, due diligence partners, etc.) who have access to data, connections, and can strike quickly.

Go beyond financial due diligence. When it comes to increasing capacity through an M&A deal, it’s not sufficient to simply understand the value of a target. You also need to assess factors like cultural fit, sustainability, and employee and consumer sentiment at the diligence stage. Consider also regulations and new challenges that may arise as your organization evolves.

The future of M&A is here. If you’ve been sitting on the sidelines, now is as good a time as ever to jump into the fray. The above will give you some orientation, but if you really want to ensure your deal goes smoothly, you need the right partners on your bench. At Audacia, we’re here to walk you through the non-financial side of due diligence. Contact us to talk about your M&A strategy

Photo credit and description: Group of people working around a laptop at an office by Flamingo Images from NounProject.com