Has Culture Ever Really Stopped a Deal
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For many of the transactions I have been part of, I have heard that resolving cultural differences are paramount to the deal going through. In practice, has anyone ever heard of a CEO killing a deal when the financial gains are potentially high but the issue with assimilating cultures is nearly impossible? I have never come across any reading where this happened before a deal closed.
Yes. Just witnessed this summer. Profitable company. Culture driven by the owner. Owner and our ownership had very different opinions and approaches to management and culture in general. Killed the deal.
Agree with the replies in this post – even if the CEO does go through with the deal (with seemingly huge financial gains), these synergies (both revenue and cost) may not even materialize and result in unprofitability / value destruction.
Does anyone have recommendations for how to successful navigate cultural integration? No to company cultures will be identical, so even if they are a good match there will still be changes that people need to make and get used to.
In my experience cultural integration takes face to face, in person interaction. The sooner the better. Form relationships early on and often.
In my opinion it does mater, understanding the culture and working with people from different nationalities/cultures. Additionally, if there is no harmony between the executives of the two companies it would be costly for both.
I know of several private transactions wherein culture should have stopped the deal. They did not realize the value the buyer imagined – primarily due to the culture gaps.
I have seen deal value destroyed because of underestimating the impact culture has on a deal. In my experience, many executives undervalue the role culture plays in the integration timeline and integration success of a merger/acquisition. I believe this area is overlooked because some leaders forget that it’s the people that make a deal successful and that people don’t always act rationally, especially while under stress and in uncertain situations (a high risk to a deal when a culture is averse to, or not used to change). I think a company’s M&A integration team has a huge opportunity to educate leaders and decisions makers of the impact of culture on a deal’s outcome during due diligence by clearly outlining the economic and timeline risks of not assessing cultural differences and similarities and subsequently, not planning for them in the integration plan. Once I saw that my company was not taking culture into account when creating must-believes and strategic rationale into the deal analysis, I worked with the corporate the development team (who agreed culture was important to a deal) to add culture callouts in the must-believe discussions with executives. We also engaged a consulting company that we were using on internal culture work to help us build an M&A Culture Playbook. At the outset of every deal, we use this to educate the deal executive sponsors, the HR lead, and other functional area leads on how to weave a cultural-focused approach into their due diligence process.
It would be quite difficult to determine the culture fit of both companies at pre-closing stages of M&A. In fact, if a proposed deal is already incurring thousands of dollars on due diligence by the acquiring company, it is more likely than not management from the target and acquiring companies would want to push the deal through unless there are any major red flags from due diligence. More often than not, advisors will not be looking at culture as a deal-breaker as they would focus on the more important financial and legal aspects of due diligence. From my experience with M&A, it is not uncommon for en masse resignation (usually from employees of the target company) after the deal is done due to change in management and work culture. In which case the acquirer/new parent company would be more than happy to ‘parachute’ their own employees from their associated companies to fill in the gaps.
I agree that advisors don’t often look at culture as dealbreaker because they are busy crunching the numbers and running over the due diligence results to protect their interests. On the other hand, where the target company has key talent employees, then losing them after integration will spell trouble for the takeover party. I mean a key talent employee who knows the target business for long time and losing them to competitors will deal a heavy blow to the takeover party. In such an instance, culture will stop a deal. There has to be measures in place to ensure continuity of key management staff or talent pipeline.
I know of one deal that broke because of culture. This buyer examined the target to understand how does the company contribute in generating revenue and they concluded that the revenue generation process would be severely affected if the deal was to take place.
However, I would say that this is very rare case.
Although the importance of culture has been highlighted by many M&A experts, companies do not really take culture aspect seriously as financial and operational aspects.
One of the reason could be that it is difficult to measure the degree of cultural fit and success. Unlike other tangible measures, soft aspects like people and culture are hard to justify to spend money on.In my view, I don’t really believe that culture differences have really stopped a deal, but it has definitely a strong impact on the success of the transaction down the line. It is also very difficult to fully evaluate a company’s culture beforehand, so culture is really part of the integration process and is based on some of the imputs gathered during DD.
from my experience, companies do not take into consideration the actual culture of both organisations, instead, it’s what the management think the company’s culture is.
I’ve seen culture be considered in identifying targets, and then a key factor in not proceeding. But I haven’t had had the experience of culture killing a deal once it’s further in the process. I think many organizations struggle to articulate their own culture, so the ability to objectively and meaningfully assess a targets culture will be superficial. In a recent experience I’ve had, the leadership spoke about cultural alignment as part of the deal rationale, but through DD, there was no discussion on culture at all. The assessment must have been relatively surface level and not likely overly accurate.
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