Has Culture Ever Really Stopped a Deal
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More often than not, I don’t see culture being a road block to getting a deal done. That’s because the financial aspect normally prevail. And occasionally, if an acquisition is not aligned to an investor’s strategy, it will not proceed. Culture is often the least of the concern until the deal is done, and any cultural mismatch will be unraveled during the integration stage – which is too late.
The problem is that culture is not clear and specific measurement based on a universally accepted formula. In most analytical minds, culture receives limited attention if you can’t precisely measure culture. It’s fascinating how such a powerful derailer of the success of a deal doesn’t have a universally accepted measure.
Large cultural differences can certainly make it much more difficult to integrate within different functions. As a consequence, the synergies and value that was planned to be captured becomes more and more difficult to be grasped, potentially leading to “unsuccessful integrations”. Assessing cultural differences from the beginning and planning accordingly is key (“a good start is half the battle” as we say in Dutch)
I have such similar experiences that a deal could be dropped by cultural mismatch. When my previous company evaluates the acquisition of a smaller company, we found that the small company owner used to have the practice of recruit people who are relatives with existing employees. As such there were small clans in the company and some people are quite laid back. This caused the deal terminated.
After reading some of these replies, my input is simply “it depends”. I think it depends, however, on who you are asking. A CEO of a start-up can easily gather enough information early on in a potential deal, without exerting too many resources, to ultimately put the kibosh on a deal with a company with ill-fitting culture. On the other hand, you ask a board of directors at a Fortune 100 whether they would stop a bad-culture deal if it shows significant gains? I would find it very difficult to believe this situation would cancel a bad deal due to culture. I’d argue it probably should be treated just the same, however, the internal pressures and sheer amount of people that need to weigh in on those questions is mind-boggling. Often times it’s a lot easier to say ‘yes’ now, then let the next leader deal with it (you know, because corporate ladders encourage minimum time in role before job-hopping). It may fail 3-5 years down the road, but the person who made that decision is long gone, probably sipping a fruity drink on a beach somewhere.
Share a similar sentiment with many of the responses. Largely dependent on the quality of the leadership team
Hi James,
Thanks for the prompt (clearly there is a lot of interest and comments here from the group).
Based on my experience, while cultural DD is important, deals typically still go through for the underlying value and synergistic potential, even if there may be some friction among management teams / cultures (both companies). Ultimately these deals are approved by the Board of Directors and proceed forward (even in cases where a hostile takeover is occurring and there may be evident variances in terms of the way both companies operate).I have seen one instance where a deal was on the 1-yard line and the owner of the target company (<$10M revenue) decided that he didn’t want anyone to be his boss (within the acquiring company). In a NewCo setting, this individual would maintain leadership over target company activities and report to the regional President. This individual felt that they should report directly to the CEO (Fortune 500 company). Ultimately, this was a deal breaker and the transaction never moved forward…
Few people get this right. Would love to see the Culture Playbook because this is a topic everyone really talks about, but know very little about actually doing something about it. If you look at the Daimler Chrysler deal the PMI team had great ambitions about aligning culture etc., but very soon the Daimler team made it known that they were in charge and that is was not merger of equals but a takeover.
I appreciate this question. I’m new to M&A, but even in my research and learning I can’t say that I’ve come across an example of culture differences stopping a deal. I have seen several case studies of culture differences destroying deal value or derailing the integration, but not stopping it before it closes. I think both are important questions though. If we don’t see cases of deals being called off because of obvious poor culture fit, what does that imply about leadership motivation and the deal drivers? That might be highlighting a need to reevaluate the overall approach to pursing M&A deals in the first place.
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