Whether you are the acquirer or the seller, significant time will have been spent researching the respective businesses to understand if they are the right fit for each other. A considerable amount of due diligence will be carried out at every stage of the process and much of the decision making is made around the financial and operational aspects of the acquisition. However, the importance of cultural integration and the various challenges it can create when it hasn’t been thought through properly or been given enough time to manage, can be detrimental.
Bringing together two different cultures needs to be considered long before the deal is done and is critical to the success of a merger.95% of executives describe cultural fit as crucial to the success of an integration, yet 25% cite a lack of cultural cohesion and alignment as the primary reason integration fails. (Integrating cultures after a merger: Addressing the unseen forces | McKinsey)
Carry out your cultural due diligence
The success of an M&A deal is dependent upon the people within the two organisations, a deal can fail because a cultural objective hasn’t been set in readiness for the two businesses combining. This can result in key people leaving, employees becoming demotivated and disengaged, and ultimately, the maximum value of the deal not being reached.
Applying the same rigor around culture as is applied to the financials when a deal is being planned, will help to ensure an integration goes smoothly following completion of the deal.
Consider a cultural due diligence process that takes into account the following points:
Identify any cultural differences
Establish what can be changed without destroying value – for example if personal relationships drive the most value, transferring them to an automated customer relationship management process will not work.
Understand business “hygiene factors” and “motivators” – what do employees within it need as a minimum to be happy in their roles?
Create a roadmap for cultural success – collate data from interactions and feedback groups to understand where differences may sit and which aspects need most attention.
(Culture Merge in M&A: Powerful Approach (Strategies, Examples) (dealroom.net))
The road to cultural integration
Bringing together two businesses represents an opportunity to create one, healthy, high performing organisation, but successful integration cannot be left to chance. Savvy acquirers define their cultural agenda, this is the culture they want to build from the combination of the two organisations. They may want to:
Assimilate the acquired company
Blend the two
Use the merger to import the acquiree’s culture
Differences in culture can be identified through interviews and surveys, to understand how decisions are made, working practices, how employees are motivated and where accountability sits. Using a more scientific approach, rather than gut instinct can really help to make these insights measurable.
Consider taking the following steps to maximise cultural integration:
Define the culture you are trying to build and understand where it can help to maximise the value of the deal.
Develop a cultural change plan that can be measured and ensures the defined culture is sustained.
Ensure the right people are in charge of embedding the cultural plan- this will need to be the right person someone with experience of cultural integration who is also perhaps a good representative of your company’s own culture.
Learn from experience – it is highly likely that whatever cultural agenda is set, there will be aspects of the target company culture, that if adopted could mean improvements to the organisation as a whole.
People are at the heart of any organisation and ultimately drive and embed the organisation’s cultural values. This will determine the success or failure of organizational integration.
Spend time before, during and after a merger building an environment that enables two businesses to join in harmony and you inevitably create one high performing organisation and a successful acquisition.
Sources:
Integrating cultures after a merger - Bain Brief | Bain & Company
Integrating cultures after a merger: Addressing the unseen forces | McKinsey
Most Mergers Fail Because People Aren't Boxes (forbes.com)
How to conduct cultural due diligence during a merger | McKinsey
Culture Merge in M&A: Powerful Approach (Strategies, Examples) (dealroom.net)
