How does target culture play into due diligence and how can it be managed?
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Due diligence is a critical step in the M&A process. Its timing and success is largely dependent on the quality of information produced by the target and the speed in which the target can produce the information. In my experience there can sometimes be resistance to providing information even when it is well within legal bounds and logically needed to assess risk and fully vet the opportunity. What recommendations do you have to manage this aspect of diligence?
Target culture should be a significant observation of the DD effort. I participate in 20+ diligence efforts year and mostly what I see is financial, Tax and IT DD, rarely do we see an HR DD workstream to examine the Target culture. In most cases each of the DD workstreams may observe certain aspects of the culture however there is no overarching effort to understand the culture until the deal is signed. By this time it is too late to understand how the Target culture may impact the buyer or vice versa. We saw this with the IAL/AIL merger (Air India). The significant difference in culture caused pilot strikes ultimately causing significant stress on the organization.
Hello Mia, I agree with you that speed and quality of information provided by target significantly influence the efficiency and quality of DD itself . Usually, from my experience, if the target is willing to be overtaken, that there is also willingness to work efficiently during the DD with the buyer. I saw resistance only once during the hostile take over. I think, to avoid any potential resistance, it makes sense to get familiar with the culture prior to considering any M&A. Unfortunately the culture is often overlooked during the initial assessment< purchasers focus more on finance and strategy. This could help to understand better how the target works internally when later engaging in DD.
100% with you. This is a key point. You can have all the figures good and all the financial assumptions with you, if you don’t understand the humans behind those you will never make a good M&A. So, understanding the culture of the target first may be a good idea for a company as it could be red flag if it will not fit with the actual company culture. There are many examples like that.
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