When worlds collide: What makes post-M&A culture so complex to get right


By Jo Geraghty, Co-founder & Director at Culture Consultancy

 

Securing market share, protecting profits, driving diversification, ensuring sustainability – whether it’s because of pressure or opportunity, there are plenty of reasons why a merger or acquisition is the right way forward for two companies.

But while M&A can hold promise, the stats around mergers are pretty grim. According to McKinsey, around 70% of mergers and acquisitions fail and 83% of mergers don’t boost shareholder returns.

And who’s the culprit standing in the ballroom with the candlestick? More often than you’d think, it’s culture.

 

The strongest mergers are built on culture

 

According to one study by Deloitte, culture was found to be the cause of 30% of failed integrations. That doesn’t only happen when there is a problem with company culture before M&A. If your people feel disconnected from the new culture that emerges post-acquisition, the likelihood of them producing great work can fall by up to 90%.

If you’re considering merging with or acquiring a company, you need to make sure you know what that company’s culture looks like. Where is it similar to yours? Where does it diverge?

When you both come together, will you try to blend your two cultures, or will one of them be adopted by the other company? Is it possible to leave the existing culture in place and run the new team as a standalone?

Cultural due diligence often falls under operations but culture is about the people. It’s their ways of working, their behaviours, attitudes and mindsets, and the everyday experience of being in the business. It’s the expectations people have of each other and the company as a whole.

In other words, culture is what makes a business thrive or die. If you don’t focus on the human element at all during due diligence, you’re likely setting the M&A up to fail.

 

Whose culture: buyer, seller or both?

 

Whether you’re approaching a merger or you’re trying to reconcile two clashing cultures after the fact, there are generally five options to look at:

  • The sold business takes on the culture of the buyer
  • The buying group adopts the culture of the sold company
  • A blend of the two cultures emerges over time
  • The new entity creates something completely new
  • The sold company’s company remains the same as a separate microculture

 

Sometimes people assume that if they’re the acquiring company, then their culture should be the one that stays. Or maybe if the selling company is performing well, they might think that culture needs to remain untouched for the results to stay rolling in.

But with M&A, the right culture going forward isn’t necessarily what worked for either entity before the merger. You need to find the right fit for the group’s goals, and that means scrutinising every level of the business to know what’s staying and what’s going.

 

Know your culture before you design your culture

 

There’s a reason why our culture change methodology always starts with an insight phase. Before you can start deciding what parts of a company’s culture to keep or change, you have to get into the detail of each entity’s mission, vision and values, and how they show up in everyday behaviours by the team.

Take our project with the global financial services group Pepper Money, for example. When we started working with them, they had recently acquired a smaller Cardiff-based firm, Optimum Credit. What they found later was that Optimum’s team had a very different way of operating and viewing the workplace, and that Pepper’s global group values didn’t resonate when applied directly.

The first thing we had to do was unpack what really needed to change. Where exactly did the two cultures diverge? Was there anywhere that they actually overlapped? Were there any elements of Optimum’s culture that were integral to their success and had to stay in place, and what could safely be reshaped?

Once we’d carried out the insight phase, we were able to put what we’d learned into practice by creating the Pepper Way. This set of four cultural principles were distilled from the Pepper Group’s core values but tweaked in ways that made them relevant to Optimum’s team in Cardiff.

They made sure that there was a consistent cultural thread between the global group and the newly-acquired team in the UK, and helped Optimum take on the group’s culture in a way that made sense to them.

 

Now for the tricky part – making it stick

 

One of the biggest challenges with a merger is that just because all the right documents are signed, it doesn’t mean that both companies will suddenly start working as one.

The same is true of culture. Just because you’ve done the digging and designed the right culture blend for the new entity, it doesn’t mean that new mission, vision and set of values will be taken up by everyone on the ground.

Making culture stick following a merger can be especially tricky. M&As are already a very unsettling experience for employees, as it’s all out of their control and it’s not clear what the business will look like in the future. As well as keeping them involved in the process, you’ll need to revisit your employee value proposition (EVP) post-M&A, to see what changes you need to make to ensure the new entity’s culture is aligned.

At Culture Consultancy we’ve often found it’s best to combine top-down, bottom-up and middle-out methods to agree and embed desirable ways of working. This approach means we can take the senior team’s insight into the merger’s purpose and their knowledge of market opportunities, and blend it with the rich understanding of client needs, processes and operational demands held by frontline staff and managers.

The result is a culture framework that is more flexible than bureaucratic rules, which motivates more than it pushes, and which gives permission to innovate as new problems come along.

And most importantly, it’s a framework that’s developed with everyone’s voices in the mix. It gives everyone a sense of ownership over the new culture, and a belief that they’re all pulling in the same direction, no matter which part of the new business they came from.

To learn more about how we can help unravel the complexity of post-merger culture, take a look at our Pepper Money case study or get in touch with the team.

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