M&A and culture – the key to unlocking value and performance

January 2025  |  FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

January 2025 Issue

Organisational alignment can be pivotal to averting merger failure. Yet acquirers frequently overlook the significance of culture, focusing primarily on the financial and legal aspects of a deal. Failing to examine people and culture issues during the due diligence phase of a transaction can result in subpar outcomes.

M&A transactions are risky propositions, and many deals ultimately fall short of expectations. Cultural issues, such as a poor integration process, are regularly cited as a contributing cause. Such problems can derail opportunities to maximise deal value. So, how can companies enhance their focus on culture during mergers?

There is no single ‘right answer’ when it comes to company culture. Yet it is increasingly clear that installing a pool table and instituting a ‘policy’ of drinks on a Friday afternoon is likely the wrong answer. Company culture is about so much more. It is a process of creating a shared set of workplace beliefs, values, attitudes, standards, purposes and behaviours, to which all employees, from the C-suite to the post room, subscribe.

Of course, shared ideals will vary from company to company. These differences can exist at any organisational level and have the potential to jeopardise post-close integration. Moreover, it is a mistake to assume that different cultures will align organically upon deal closure.

Differences in corporate cultures can lead to conflict, misunderstandings, reduced productivity and a drop in morale. Employees may experience a clash of values, work styles and communication. All of this can erode efficiency and performance of the newly combined organisation.

Cross-border deals can magnify these differences. National or regional cultural variations can complicate integration. Time zone disparities can make coordination and collaboration more challenging. Careful management is required in these circumstances. Bridging diverse cultural values and expectations is vital.

The aim is to create an atmosphere in which all team members feel respected and the company is focused on achieving success following a period of upheaval. A shared sense of purpose can reinvigorate morale, drive engagement and bolster productivity.

Companies can pursue various options here. Some may opt for a more forceful integration, steamrollering over cultural differences, though this could create issues down the line. Another option is to allow regional managers to run their own units with local cultural sensitivities in mind. Granting more autonomy to different parts of a business may prove beneficial in the long term.

Mitigating problems with integration planning

To mitigate risks and help deliver operational results, buyers need to navigate integration matters effectively. They need to assess any potential cultural clashes and smooth out associated issues that might emerge.

Problems integrating employees, for example, can negatively impact company performance. Lack of employee buy-in to the newly combined company culture or ethos can result in a decline in workplace performance. Some employees, particularly those who have been with a company for a long time, may feel disconnected and find it hard to accept the loss of their company’s identity and values, for example. Employee wellbeing, including stress and burnout, can also affect performance and talent retention.

Leadership and communication

While companies and their leadership teams can issue effective rallying cries to their employees, negative attitudes and perspectives often cannot be changed through words alone. Companies must go beyond simple lip service. Changing behaviours is crucial to supporting cultural evolution across all businesses. Desired behaviours must be clearly defined, communicated to staff and demonstrated by organisational leaders, especially to newly integrated team members. Additionally, organisational processes and systems must be in place to reinforce this message. Sub-optimal or undesirable behaviours should be identified and challenged constructively.

Clear, consistent communication with employees and stakeholders is crucial. Companies need to provide accurate information, address concerns and ensure that messaging aligns with the brand’s theme and tone. This dialogue will enable senior management to understand the impact of key changes in the post-merger environment, anticipate future challenges and trends, and realign vision and strategy as needed. Well-planned communication strategies will also help individuals comprehend changes in their roles, work practices and performance goals, fostering a smoother transition.

Acquiring companies should prioritise employee engagement. Leaders need to convey the new vision to disgruntled or disenfranchised employees, encouraging them to embrace the new culture. Taking time to ensure employees are on board with the integration process and engaged in the change process can help to avoid a drop in productivity levels.

Transformative opportunity

M&A transactions, properly executed, can add significant value for all stakeholders. To fully realise the benefits of a deal, parties must plan accordingly at all stages of the transaction. For cultural integration, planning should be done at multiple stages of the deal, during target identification, due diligence, before the deal closes and post-close.

Strong leadership allows acquirers to tackle the unique set of challenges that cultural dynamics present in every transaction, allowing merged companies to prosper going forward. Moreover, companies that excel at this process may even leverage mergers as a transformative opportunity to establish a robust, high-performing organisational foundation.

© Financier Worldwide

BY

Richard Summerfield