Reasons Mergers Fail – Culture

This topic contains 5 replies, has 6 voices, and was last updated by  Kent Anderson 2 days, 17 hours ago.

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  • #112498

    Rochelle Ramos
    Participant

    One reason mergers fail us due to the lack of compatibility between the two cultures. Some companies realize the deal is good financially but understand the risk of different management styles, processes and strengths can be a challenge.

    How do you suggest two companies handle the difference? Is culture such a huge factor in success that you would suggest ending the discussion around M&A? Or, would you suggest working with key personnel to construct specific terms and conditions for culture post M&A and take the risk?

    #112524

    Great discussion topic Rochelle! Having been part of some acquisitions on the side of being with the company that made the purchase, I feel having similar or complimentary cultures is very important in the success of the integration, and COMPLETE lack of compatibility could and should be a deal breaker. When a company is targeted to be acquired, it is generally for what they’ve built (with their culture) and to plan on completely changing that is likely going to yield far less results after the acquisition than what was being produced prior. I think it needs to make financial sense AND have similar or at least complimentary cultures for the best overall results.

    #112792

    Denise Gingolaski
    Participant

    Hi Rochelle – I would not take the risk of the cultures are not compatible. I think mergers are hard enough when there is a similar culture.

    For example, two company’s could have a very similar culture with regards to customer service. However, how Company A might view customer service versus how Company B views it might be very different. It’s the ‘how to handle it upon merger’ that could cause issues. Similar company’s would most likely give the other the benefit of the doubt and collaborate.

    Incompatable cultures would not work easily together to find a solution.

    #112826

    Mandana Javaheri
    Participant

    I would say during the DD we need to understand the culture of the seller company very well and define whether they are a good fit to the culture of the buyer company. It is very hard to integrate the culture if they are very different.
    Having said that proper attention and integration needs to be done after the closing to make sure the 2 companies are integrated culturally. And that would start with training, constant communication, and building a culture of inclusion.

    #113056

    Gina Miele
    Participant

    Though corporate culture is an under-ranked and under-evaluated portion of the due diligence process, I believe its evaluation is critical to a successful integration. Our first integration ended in 100% turnover due to the cultural differences being too great to work through. This difference was accentuated by our retention of the previous owner for the first year post-acquisition. Her presence only increased the divide between cultures, as she was resistant to the changes we attempted to implement. The site is now operating more successfully now that there are no legacy employees left, but the legacy customers are having a difficult time with the transition as well. Since this first acquisition, we have more heavily weighed corporate culture in our due diligence process and walked away from a few organizations due to insurmountable differences that would create costly clashes post-acquisition.

    Since there will be cultural differences in every company that is acquired, I would suggest that these differences are handled by ensuring that the leadership teams are on the same page about the changes that will occur. Open communication surrounding the intentions for change, as well as full transparency of the structure of these changes, will be critical pieces of information to ensure that the acquiring company and the acquired company can both work towards a common goal. If the previous owner is retained, they can be a critical piece in the integration puzzle as long as they are working towards the goals of the newly merged organization.

    #113455

    Kent Anderson
    Participant

    Corporate culture varies wildly. In one position I was in, we decided to build on the green field versus acquire for the exact reason of corporate culture. Our company had a culture that we believed was central to our success. We considered the challenges of building everything from scratch to be the easier path than acquiring a company and working to change the culture, in particular for the exact reason that Gina mentions. High turnover would have been the likely result.

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