What’s a Brand Got to Do With It? Why Corporate Culture Is Something to Consider Before an Acquisition

Globalization and the changing market environment have fuelled a growth of Mergers and Acquisitions (M&A) over the last two decades. Opting for an M&A is a popular strategic choice for an organization’s growth and expansion.

However, statistics (Sperduto, 2007) have shown that 75 % of all M&A’s fail to produce their intended financial results. Amongst the primary reasons cited for the high rate of failure, are the inadequate engagement of employees and integration of the culture of merging organizations.

Why is corporate culture so important?

Culture drives everything that happens in organizations, good or bad. An organization’s cultural dynamics include everything from how they operate, and the manner in which they develop their talent, to how they are motivated to succeed, and their executive management’s decision making style.

These are the fundamentals that drive the company to its success or failure. A thorough understanding of the cultural dynamics of the organization will power the acquisition to have greater potential for success.

The need for cultural due diligence

Before an M &A deal goes through, a detailed financial due diligence is carried out through data rooms and shared financials. In the same way, cultural due diligence, which examines the company’s corporate culture inclusive of the examination of another’s institutional capabilities, operating cultures, and management talent must be done beforehand.

CEO’s negotiating deals, must conduct such a cultural due diligence by talking to past members of the target organization, interviewing common suppliers, customers, industry observers, and analysts.

Cultural due diligence brings two major advantages to the acquisition. Firstly, it brings the acquirer sufficient knowledge which can lead to better integration planning.

The acquiring management will know at the outset what they need to receive from the acquired entity and can accordingly plan to strengthen and build a more collective competitive operation. Secondly, with prior knowledge the whole integration plan can be more easily designed and implemented at a faster pace.

It will lead to easier decisions about retaining crucial staff, forming the new leadership structure, and making changes to management systems.

Cultural due diligence: A must before finalizing an M&A deal

Just as financial due diligence is a prerequisite for any transaction, cultural due diligence should also be as much of a core part of an M&A’s pre-deal effort. While its benefits include a faster paced and more focused integration planning, not doing so adds a considerable risk to the chances of failure.