Culture in M&A Deals

A cultural mismatch is one of the biggest predictors of post-merger deal failure. Even just 15 years ago, people didn’t think much about culture, even though deal history is full of companies that failed because of cultural issues. Culture is important in all types of deals and in all companies, but it is especially important when bringing together two large entities with strong cultures. It’s not enough to look at whether the cultures are compatible. You must also look at how each company must change. Sometimes opposite cultures can actually complement one another. For example, when one business has strong discipline and the other needs it but lacks it, the union can be a great one. Do it wrong, though, and you’ll end up with resentful employees and a failed deal. Cultural differences may manifest well before the merger. You’ll witness two groups sitting in a room responding very differently to data. One might want hard metrics, while the other wants endless meetings. This early dynamic sheds light on potential differences you might see down the road. Another way to assess culture is to develop an index that looks at many different data points. Rather than deciding which company’s culture is superior, this approach examines how each company does things. This is useful for all aspects of running a business, even if you elect not to go through with the deal. That’s because companies with healthy cultures tend to thrive. As you move through the process, it’s important to understand what you are merging. Companies acquiring businesses where talent significantly drives the value of the deal must understand culture, since otherwise they may lose key talent. Look at things through the lens of staff; how will the merger affect them, and will those effects be positive or negative? Ultimately, companies must be just as rigorous in their assessment of culture as they are in their assessment of financial issues. This includes engaging in cultural due diligence early in the process. The first step in this process is to figure out which cultural elements are most important to realizing the deal’s goals. Next, pay attention to cultural differences in each company. Whom do they talk about? How do they talk? What is their level of enthusiasm? How do they respond to change? Finally, develop a blueprint for the culture of the final company. This blueprint must include actionable steps for reaching your cultural goals, as well as open, clear, specific discussions about cultural differences.