Reasons Mergers Fail – Culture

This topic contains 13 replies, has 14 voices, and was last updated by  Muhammad Afaq Bin Tariq 1 week, 4 days ago.

Viewing 14 posts - 1 through 14 (of 14 total)
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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.

    #113753

    Wei Zhong Ong
    Participant

    I think cultural fit between 2 entities is very important for a merger to succeed. Therefore, it is important that key employees and management of the entities align expectations first and get a sense of the other side’s culture and policies during the pre-merger discussions. Constant communication is key in the process of a merger.

    #114048

    Awais Dilawer
    Participant

    Culture is the most important factor on which the success of M&A deal depends on. There should be extensive planning and proper conversation with the employees working in the organization before the integration. It would be a great risk and i won’t suggest to merge companies with absolute different culture because it some point after huge losses company would certainly demerge.

    #114090


    Participant

    Hi Rochelle! I’ve been in an integration between two companies with very different cultures and it was a nightmare. Different expectations, different ways to solve the same problem, different process, different … everything. Finally my company divested.

    I agree with Mandana, Cultural matching should be a very important part of the Due Diligence.

    #114096

    Bradley D. Soto
    Participant

    Great question! Culture will always eat your M&A strategy for breakfast, lunch & dinner. That said, an effective Cultural DD that can objectively & simply point out the areas of difference for the Buyer’s management to evaluate against a set of factors is key (e.g. probability of success in addressing during integration, where the issues exist – management vs the frontline, risks posed to the Buyer’s existing employees & operations).

    #114267

    Yaw Adom-Boateng
    Participant

    I agree with Bradley and others. Culture integration is such a great challenge that requires utmost attention, especially during the due diligence phase, the outcome of which will give indication to the acquirer firm the chances of integration success.

    #114300

    stacy hall
    Participant

    Emphasize your core values.
    Incentivize — turn blame to praise
    Establish good communication guidelines
    Minimize debate — fast responses
    Protect the business by establishing a workstream/team
    Empower your people
    Achieve personal commitment by all key stakeholders

    #114676

    Andy
    Participant

    Culture can be said to play a pivotal role in deciding whether the deal makes or breaks. Often when people from two highly disparate corporate cultures come together, they are likely to be incompatible or at best, remain as they were by operating independently of others. Putting this into an organizational context, sustaining two different cultures concurrently might only be practically possible if both entities remained independent of each other’s operations. In all other cases, cultural integration should be managed properly considering that day-to-day social interaction is almost inevitable. The failure to manage differences in corporate cultures could be an antecedent for the widespread disunity amongst staff, departure of talents, and even a potential takeover by opportunists.

    #114788

    Even though the companies recognise culture as a key factor in the M&A’s success, most of them fail to conduct cultural due diligence before they finalise the deal, in spite of undertaking detailed pre-deal diligence and assessments about 70 to 80% deals do not deliver their intended objectives due to cultural differences.

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