Reply To: The Culture Factor in M&As

#109998

Paul Gray
Participant

That is a very great question: In all transactions the general thinking is that “if it doesn’t make money it doesn’t make sense”. This therefore drives a lot of the preliminary and post transaction work that is done. For example, during the negotiations, decision makers place all the emphasis on the financial and possibly the operational due diligence, seeking to understand the net benefit of the acquisition taking into consideration all the identified synergies. People synergies and its associated idiosyncrasies are generally not contemplated and intuitively so. The intuition is in the context challenges to execute a culture due diligence ahead of the transaction could create significant costs with the culture results being primarily hypothesis to be tested. It is true that during the financial and operational due diligence process, significant culture information is obtained and there needs to be a way in which this can be captured, and its impact quantified. In this way, the synergy benefits may be scaled up or down depending on the culture assessment but its overall results will still suggest that mitigation lies in specific management activities. Outside of the quantification challenge, qualification issues will arise in that its not always certain that the existence of culture gaps, will mean a diminution in the potential synergies to be realized. The latter until a proven framework for assessment is developed, will ensure that C-level executives and Board, will always focus on the financial due diligence and take the risk of cultural integration provided that the risk versus reward per their calculation is worth it!

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