Morne Patterson - M&A and Shareholder Activism

 

Merger and acquisition (“M&A”) activities play a critical role in shaping the business landscape, driving growth, and optimising efficiency in various industries. However, these transactions are not immune to scrutiny and influence from shareholders, often leading to shareholder activism. Let’s explore the implications of shareholder activism on M&A deals and discuss strategies to navigate complexity.

 

Understanding Shareholder Activism

Shareholder activism involves shareholders, often institutional investors, or hedge funds, using their influence to advocate for specific changes within a company. These changes can range from altering the company's strategic direction to advocating for better corporate governance, including proposed M&A transactions.

 

In the context of M&A, activist shareholders might push for changes in deal terms, demand better valuation, or even oppose the transaction if they believe it doesn't maximise shareholder value.

 

Implications for M&A Deals

1. Deal Valuation and Terms

Shareholder activists often scrutinise the valuation and terms of M&A deals. They may argue that the acquisition overvalues the target company or that the terms are not favourable to existing shareholders. This scrutiny can influence negotiations and potentially impact the final terms of the deal.

 

2. Deal Approval and Execution

Shareholder activism can delay or complicate the approval and execution of M&A deals. Activists may attempt to rally support from other shareholders to block the transaction or demand modifications to the deal structure. This can prolong the overall deal timeline and potentially affect the deal's success.

 

3. Post-Merger Integration

If an activist successfully influences changes in the M&A deal, it may impact the post-merger integration process. Altered strategies or operational changes resulting from activist demands can affect the integration plan and its expected outcomes.

 

Strategies to Navigate Shareholder Activism in M&A

1. Proactive Engagement and Communication

Engage with shareholders early and transparently. Providing clear and well-structured communications about the rationale behind the M&A transaction, its potential benefits, and how it aligns with the company's long-term strategy can help mitigate concerns and gain shareholder support.

 

2. Conduct Thorough Due Diligence

Anticipate potential areas of concern by conducting thorough due diligence on the target company and its shareholders. Identifying potential activist investors early in the process allows for proactive engagement and a better understanding of their concerns.

 

3. Construct a Robust Defence Strategy

Develop a well-thought-out defence strategy in case of activist intervention. This could include preparing comprehensive messaging to shareholders, engaging legal and financial advisors, and outlining the merits of the deal to demonstrate its value.

 

4. Engage in Negotiations

Consider engaging in negotiations with activist shareholders to address their concerns and find common ground. This could involve modifying deal terms or providing additional shareholder benefits to secure their support for the transaction.

 

5. Prioritise Shareholder Value

Ultimately, strive to prioritise shareholder value throughout the M&A process. Demonstrating a clear path to value creation through the transaction and actively addressing shareholder concerns will help in gaining the necessary support for the deal.

 

In conclusion, shareholder activism can significantly impact M&A deals, potentially altering valuations, terms, and timelines. By proactively engaging with shareholders, conducting comprehensive due diligence, constructing a robust defence strategy, and prioritising shareholder value, companies can effectively navigate the landscape of M&A and shareholder activism, ultimately enhancing the likelihood of successful transactions that benefit all stakeholders involved.