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Will your acquisition be successful?

How important is culture when you are acquiring or merging with another company?

A KPMG study found that 83% of mergers fail. The number one reason these mergers failed? Culture. According to the Bain & Company survey of executives, clashing cultures lead to frustrated and anxious employees, demoralization, defections, productivity flags and eventually, failure. Alex Miller of KPMG said,

“Culture fit is pivotal in the long run…Merging cultures often determine strategic outcomes”.

Strategies that might lead to M&A transactions:

  • Rapid customer growth -acquire them.
  • Infusion of new age thinkers to improve innovation.
  • Consolidation. Is often inevitable for a company’s survival, but you need to choose your partner(s) wisely.

There are many reasons to consider an M&A path. Whatever your reasons, you must strategically assess how both cultures will complement or collide with each other. Culture clash is arguably your biggest risk and will have a dramatic impact on the chances of success in your transaction.

There are multiple ways to assess culture. The most basic, and frequently the only approach, is to ask the owner/executives about the culture. Dig deep on those questions and get very specific. “We have a great culture” “People love working here” “Our culture is caring and supportive” and “Our culture supports our mission of respect for customers and employees” are not valuable answers. How is the culture encouraged and promoted? How does it show up day to day?

Even these deeper answers aren’t enough to see the full picture. Adding a secondary approach such as computerized assessments like the Dennison Organizational Culture Survey and deeper due diligence in specific areas that are hotbeds for the root of culture development are significantly more reliable.

Specific areas for due diligence on culture evaluation:

Processes and procedures that create specific behaviors:

  • Performance plans that are tied to strategic initiatives versus bonuses based on checklists or management recommendations.
  • Process improvement plans need measurable metrics that will generate specific value to the company as well as personal pride in accomplishment.

Historical accounts from the company contacts:

  • The verbiage and stories a company executive and/or employee uses speak volumes. Pay attention and ask questions about the meaning behind the words.
  • The widespread use of “I” versus “we” might mean the company does not value collaboration but more individual accomplishments.

How conflict is handled:

  • What are the approaches utilized by the management to resolve conflicts?
  • Do the managers hear each individual view of the situation and then decide?
  • Do they bring all parties into a room and talk it out?
  • Are all disagreements handled by one person, typically the owner?

Culture clashes are a real threat to the ultimate success of any acquisition or merger you are considering or in the midst of completing. Knowledge is half the battle in mitigating your risk. If you have gathered information at a deep enough level, you can choose to continue or not based on the probability that the cultures will combine well.

Going forward, you can include in the integration anything that needs to be discussed, planned for, and implemented to ensure a purposeful culture is embedded and becomes productive as quickly as possible. Take the extra time and meaningful effort to increase your chances of becoming part of the 10-50% of successful M&A transactions.

At Kinetic Insights, our PathFinders are skilled in helping leaders unleash the greatness in themselves and in their organizations. Call or email us for a quick discussion that just might put you and your team on the path to significant change.

Gail A. Froelicher is Founder and CEO of Kinetic Insights, LLC. For over 11 years, Gail and her team of PathFinders have journeyed with their customers to forge successful paths in rapidly changing business environments.   

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