The Culture Factor in M&As

This topic contains 3 replies, has 4 voices, and was last updated by  Andre Hamilton 15 hours, 6 minutes ago.

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  • #109958

    Bradley D. Soto
    Participant

    Organizations today undergo mergers, acquisitions, and joint ventures for many reasons: among them, to acquire technologies, products, and market access, to create economies of scale, or to establish a global presence. However, culture has emerged as one of the dominant factors that prevent effective integrations, and talent consistently ranks as one of the top reasons keeping CEOs awake at night during the annual survey of CEOs at the Davos Economic Forum. Making appropriate, timely decisions and operating effectively becomes extremely difficult when merging companies with different cultures. This, in turn, can undermine the potential value created through the newly integrated company.

    The question then is: Why do issues of culture continue to derail the success of M&As despite all of the published research?

    #109998

    Paul Gray
    Participant

    That is a very great question: In all transactions the general thinking is that “if it doesn’t make money it doesn’t make sense”. This therefore drives a lot of the preliminary and post transaction work that is done. For example, during the negotiations, decision makers place all the emphasis on the financial and possibly the operational due diligence, seeking to understand the net benefit of the acquisition taking into consideration all the identified synergies. People synergies and its associated idiosyncrasies are generally not contemplated and intuitively so. The intuition is in the context challenges to execute a culture due diligence ahead of the transaction could create significant costs with the culture results being primarily hypothesis to be tested. It is true that during the financial and operational due diligence process, significant culture information is obtained and there needs to be a way in which this can be captured, and its impact quantified. In this way, the synergy benefits may be scaled up or down depending on the culture assessment but its overall results will still suggest that mitigation lies in specific management activities. Outside of the quantification challenge, qualification issues will arise in that its not always certain that the existence of culture gaps, will mean a diminution in the potential synergies to be realized. The latter until a proven framework for assessment is developed, will ensure that C-level executives and Board, will always focus on the financial due diligence and take the risk of cultural integration provided that the risk versus reward per their calculation is worth it!

    #110108

    Beckie Callahan
    Participant

    My guess is that C-level executives are overly optimistic in the role that culture fit plays in M&A (or they are not reading the research). Perhaps in many cases, the acquiring company is only after specific technologies and/or patents, the culture of the non-key employees are not relevant. I just reviewed a list of 76 companies that my employer has acquired over the past 10 years that I’ve been working. I was surprised to remember some of the cases and how certain executives were very bullish on specific product lines, but if they left, then those acquisitions or product lines may have been abandoned as well. Sometimes the short-term goals get forgotten when the next shiny object or hot new trend appears. The definition of success to an outsider may be different than to the company insiders. Another consideration is the wide-spread use of videoconferencing now with the COVID-19 situation. As people are not travelling, C-level executives are now able to join more calls and be involved in ways that were more difficult before. Better communication, expectations setting and sharing may improve cultural issues. Who knows, now I’m the one being the optimist! 🙂

    #110532

    Andre Hamilton
    Participant

    I think that there is a real disconnect between the CEOs/ top management and what is actually going on at the ground level of a company. This is specifically true in larger corporations. At these larger companies, the lower level positions have created a revolving door policy due to the high turnover. When this becomes the culture, it becomes engrained the DNA of the company. Somewhere along the way, companies lose sight of its core values and forget the mission statement in an attempt to chase profits. Current situations really highlight those companies that are out of touch with reality. The culture of a firm is pivotal in a successful merger.

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