How to prevent a hostile takeover

Martin Devenish, board director at S-RM shares his thoughts on the best practices for avoicing a hostile takeover of your company. Prior to S-RM, Martin spent 22 years at Goldman Sachs in London and New York. During his career, Martin assumed a number of leadership roles and became a Partner in 2002. 

Takeovers are on the rise. So far this year, almost $4tn of deals have been agreed globally. Some of those will have inevitably been the result of hostile takeovers.  As economies emerge from lockdown, the growth in M&A activity will continue as pent-up demand is released. In this reinvigorated M&A marketplace, both the victims and victors of the pandemic will find themselves being sized up for acquisition. So how can senior management of target companies use intelligence to reduce the risk of a hostile approach?

Knowing how your largest shareholders think

Most listed companies have an Investor Relations team, but a frequent blind spot is insufficient monitoring of how major stakeholders behave. A cursory ‘pulse check’ during earnings calls and in-person meetings does not provide an in-depth knowledge of their attitudes and actions.

More meaningful aspects to look at include how their stated investment philosophies have been practiced in the past. They may be more vocal on these issues than immediately evident. For example, professional community platforms, recorded press interviews, and statements made via their professional channels can all give an indication as to their deeper motivations and concerns.

This is where targeted open-source intelligence (OSINT) techniques come into play. With a larger quantity of information online than ever before, companies are turning to ‘smarter’ ways to find the right shareholder intelligence.

Putting regular or continuous monitoring of key stakeholder sentiment in place can help a business to quickly identify arising issues and changing shareholder opinions. This allows the business to be more prepared for the most likely shareholder challenges they may face. Ultimately, these are the people that a would-be acquirer will attempt to sway. Therefore, the more a business understands these critical actors the better prepared it will be to handle a situation that could lead to a takeover attempt.

Knowing your “enemy”

Gathering targeted corporate intelligence on potential hostile actors is also a necessity. Understanding how they have conducted deals in the past can give business leaders insight into how to best defend against their go-to tactics.

It is also worth considering who the key stakeholders of the ‘enemy’ might be and what factors influence their decision making. This allows firms to identify potential key lines of attack and what can be put in place for successful defence strategy. In addition to conventional public platforms and channels, it’s worth investigating niche platforms such as  trading chat rooms to find out more.

The human side of the equation cannot be ignored, and human intelligence (HUMINT) continues to play a vital role in preventing hostile takeovers. A thorough network analysis and HUMINT strategy can help a business identify those closest to the ‘hostile actor’, as well as those who may have been on the receiving end of the hostile approach from the same party. Mapping out these intangible human ties combined with digital evidence sourced by open-source intelligence will create a more holistic picture. Once this is completed, in-depth interviews and discussions with key players who have interacted with the ‘actor’ can help build a more detailed picture of the human dynamic during previous takeovers.

A ‘quick win’ to firm up a defence may include the discovery of any disqualifying issues in proxy nominees. Cursory background checks are the norm for most businesses; however, a deeper investigation of past professional performance may uncover the one element that guarantees a defensive victory.

The best defence is a good offense

At the same time, the pandemic has accelerated awareness in many businesses about the role that data and online resources can play in improving business resilience.

This has led to greater awareness of emerging corporate intelligence sources and techniques. A successful intelligence partner can not only be the key to preventing a hostile takeover attempt, it can also save businesses money and improve resilience.

In a race between target organisations and acquirers, there has never been a better time for leadership teams to review and refresh their strategies to prevent hostile takeover attempts. A holistic approach combining the strengths of open-source and human intelligence techniques is essential in the digital world in which we operate.

Companies that prepare their strategy now against potential hostile actors will be able to identify takeover attempts and head them off at the pass. This will avoid costly legal battles and help them to shift their focus to a proactive strategy for building corporate resilience.