Diplomacy in M&A

Diplomacy in M&A

22 September, 2021

“A merger is hard to pull off under any circumstances. It’s harder when everybody is against you.” – Carly Fiorina, former CEO of Hewlett Packard

M&A Diplomacy aims at using the tools of diplomacy to make mergers and acquisitions a smoother process. It is our understanding, that diplomacy is the art of shaping decisions and the behaviour of third parties through dialogue, negotiation, and other soft means. Historically, diplomacy meant the conduct of official, bilateral relations. Dr Borer and his team make use of practices used in diplomacy and apply them in business contexts.

Geopolitical Environment and its Effects on M&A

With rising tensions between political powerhouses, the primacy of the economy is weakened by the rising influence exerted by politics. Given its growing influence, politics permeate at an increasing rate to the realm of business via regulation, lobbying and political framing. Accordingly, the ability to influence policy decisions and the understanding of politics become powerful tools for business.

One must bear in mind that every M&A transaction takes place within a political framework. In this framework, economic actors are allowed to do business in accordance with a given set of rules. The policy framework in turn is set by the process of policymaking. As described earlier, politicians and bureaucrats are gaining ground over time, increasing regulations, serving their own favour, which then negatively affects the ability to do business. To counteract this growing influence of bureaucrats and overregulation, businesses must engage in policymaking, shaping business-friendly policy-outcomes.

Cross-Border Business

The costs of doing global business intensify with growing plurality of regulatory frameworks. Accordingly, legal, and political information as well as cultural insights become more important when conducting business across borders. It lies in the interest of businesses to balance between various regional policy frameworks, when acting globally. Hence, businesses must be aware of different regimes, adapt to local and regional frameworks, act wisely, and deepen their involvement in the sphere of policymaking.

Global Challenges to M&A

Geopolitical tensions manifest themselves in the erosion of economic freedoms, deterioration of the rule of law and growing costs of doing business. These factors lead to more complexity in business overall and mergers and acquisitions in specific. Geopolitical pressures are significantly increasing between the big powers in the current environment. The most obvious example is the deterioration of relations between the USA and China. The “Western Block” keeps close ties, relying on a common set of rules. The USA and EU are reacting with protectionist measures, such as trade barriers, embargoes, sanctions, or prohibition of investments, while China is growing confident over time. These megatrends pose challenges and are obstacles to anyone engaging in global business activities.

In Switzerland, companies will likely see resurfacing bureaucratic challenges of the past due to termination of the negotiations with the EU on an Institutional Framework Agreement. This agreement was associated with the rule of law and an arbitration mechanism, all of which stand synonymously for stability in doing business. The decision to end negotiations will lead to erosion of the bilateral framework and hence raise uncertainty when doing business. It therefore is of essence for economic actors to have a reliable and professional sparring partner who understands the political reality, allowing for insights.

One of the main challenges for mergers and acquisitions is growing regulatory pressure. Never before have so many rejections of mergers and acquisitions transactions by regulators been recorded. A key example was the 30 billion merger between London Stock Exchange and Deutsche Börse, which failed three times. Again, policy interests interfered with business interests. The creation of a European Stock Exchange that would be able to compete with its American rivals was blocked. According to Margarethe Vestager, the EU’s Competition Commissioner, the merger would have created a de-facto monopoly in the clearing of bonds and fixed-income products.

Negative outcomes can be avoided through proactive communication with stakeholders. Such an approach of keeping close ties with every stakeholder involved, can be referred to as M&A Diplomacy, a terminology coined by the Private Equity and M&A team of Dr. Borer Consulting.

The Art of M&A Diplomacy

M&A diplomacy is a powerful tool to manage and mitigate uncertainty. A firm’s value can substantially change between the time when deal terms are set and the time the actual deal is closed, risking renegotiation or termination. The effect is strongest when volatility is highest, when deals take longer to close, or when targets concerned are large.

Our team’s know-how builds on the foundation of Dr. Borer’s experience in the Swiss diplomatic service and as a former Ambassador. We apply the values and codes of diplomacy into the sphere of mergers and acquisitions. Our work stands for building networks, mutual trust, and stability.

A special focus in M&A diplomacy lies on the build-up of a goodwill reservoir. It is our goal to identify and manage all stakeholders involved. Maintaining close ties in any given relationship, and consideration of soft factors, are just as important as pricing. Hence, information and networks are key in times of increased uncertainty, both of which Dr Borer Consulting can provide.

Why M&A Diplomacy?

The growing influence of politics on the economy is forcing economic stakeholders to increasingly enter the political sphere to make their voices heard. By advocating the interests their interests vis-à-vis relevant parties, M&A Diplomacy supports economic stakeholders in this endeavor and hence renders the complex task of mergers and acquisitions more predictable. These features are critical in the current volatile, uncertain, complex, and ambiguous environment as well as avoiding unnecessary cost drivers.

We are specialists in managing communications and negotiations between institutional actors, businesses, policymakers, and individuals. Our team helps leaders in business to understand the attitudes and actions of business partners and government officials, and vice-versa. We develop strategies and tactics, which shape the behaviour of third parties. The use of diplomatic practices is key to successful mergers and acquisitions activities.

Markus Schilter, Analyst and Daniel Hunkeler, Strategic Advisor

If you would like to know more about Dr. Borer Consulting’s Private Equity and M&A services, please contact us at hunkeler@tbf-consulting.com or +41 43 499 73 83.

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