Global M&A activity has been described by KPMG as “turbocharged”, with deals expected to reach a record breaking $6 trillion (£4.47 trn) by the end of 2021. Yet in the race to acquire the best businesses, with competition particularly rife over technology and sustainability firms, leaders often overlook the importance of culture and integration before signing on the dotted line.
As Peter Drucker once famously said, “culture eats strategy for breakfast”; meaning that whilst strategy is undoubtedly important, an empowering culture creates more successful organisations. Yet despite 95% of executives agreeing that cultural fit is critical to the success of merging, only 25% cite a lack of cultural cohesion and alignment as the primary reason integration efforts fail.
And with 70-90% of business cases failing, how can organisations better their chances of a successful M&A? By considering culture and integration in the following ways, both prior and post M&A activity, can make a significant difference to the outcome of a merger.
- Conduct a cultural assessment prior to acquisition
This stage may be too late for some organisations, but a lesson for the future all the same. As part of the due diligence process, businesses should seek to understand the culture of the organisation prior to purchase. This will help the buying organisation to understand whether there is cultural alignment, enabling them to assess potential time and financial implications of supporting integration practices if not.
PwC provides an example of an organisation that didn’t take culture and integration into consideration before acquisition, and therefore was unaware that decisions by senior leaders in the joining company were typically made autonomously. So, when the acquired chief IT officer announced a new organisational structure without any prior stakeholder engagement, integration came to a halt as questions flooded in from both sides of the business. Had a cultural assessment been conducted beforehand, leaders may have been able to circumvent this issue – creating a unified approach upon merge.
- (Re)communicate culture and values to aid integration
Merged organisations don’t have to establish a brand-new culture, but they need to communicate values and behaviours to help employees integrate more effectively – through understanding where they sit in the wider corporate ecosystem. Some organisations have flat structures and relaxed ways of conducting business, for example, whilst others are hierarchical and formal. Not all talent will align with the values and behaviours communicated, but failure to convey anything would result in poor integration and a greater fallout – as employees struggle to find their identity in a recently merged business.
When considering that some organisations are acquiring businesses to access specific skills and talent too, it can be devastating to lose employees so quickly. Research by EY finds that 47% of key employees leave after a major transaction, increasing to 75% after just three years. So, whilst having an established culture can seem like a nice to have, it’s actually a business imperative to retaining key talent.
- Utilising tools to understand the talent landscape
Prior to acquiring an organisation, or once a merge has occurred, it is worthwhile utilising assessment tools to understand what drives individual leaders and teams to support integration. The acquiring business may assume that newly merged employees will operate in the same vein as before, but if the company values and roles aren’t aligned to an individual’s natural proclivities – they won’t flourish. For example, a leader that was previously lauded – as their role enabled plentiful mentoring opportunities, that supported their personal values – may struggle in a new organisation where profits are the only marker of success.
Assessments, such as our GC Index, can help merging or merged organisations to understand the impact and contribution individuals and teams currently make to foster more effective integration. The GC Index also helps organisations to identify where there may be gaps in current teams, which could benefit from greater neurodiversity to boost performance. Such assessments can help to ensure that recently formed teams are thoroughly integrated and get off to a flying start, helping employees to understand the value of their contribution and how they can work collectively under new circumstances.
With the M&A market so robust at present, it’s a missed opportunity for businesses not to consider culture and integration as part of its due diligence process. Businesses then stand a better chance of successfully merging, as employees are suitably integrated and understand where they fit. Conducting assessments as to where individuals and teams can make the most impact, can further support engagement and retention of key employees too. In a competitive business market, taking time to consider culture and integration during M&A can provide a critical edge – making new ventures a success from the start.