Navigating Complexities of M&A: Getting the Culture Right

Global mergers and acquisitions (M&A) activity hit record-setting highs in 2021 and there is optimism that 2022 will continue to be a strong year for dealmaking, according to Barclays. But after the deal closes and it becomes official, that’s when the real work happens. That’s when the true success of the merger or acquisition is determined, and it all starts with company culture.

While having compatible company cultures may seem like an obvious factor to consider, most companies focus only on tangible factors, including revenue and profit, the customer mix, and the store of internal talent. How well the two companies’ cultures align is too often overlooked or an afterthought.

The reality is that cultural factors and organizational alignment are critical to success (and avoiding failure) in M&A’s. Some 95% of executives describe cultural fit as critical to the success of integration, according to McKinsey. Yet 25% cite a lack of cultural cohesion and alignment as the primary reason integration efforts fail.

To help avoid failure, one of the first things companies should do when considering a merger or acquisition is to conduct a culture mapping exercise, which entails mapping the values of the target organization and comparing them to the acquiring company’s values. This is a good start and can be the beginning of what should be many ongoing conversations. At CDW, we validate the culture of a company through many discussions to ensure that the values written down are really part of the fabric of the company and not just signs on a wall.

To ensure cultural alignment is taken seriously by both parties, this validation process should be led by the executive teams; they must be committed to the cultural evaluation effort. In addition, outlined below are three key behaviors to ensure the cultures of both companies align during and after the acquisition:

1. Listen to employees

This process should begin as early as possible, and action should be taken before cultural integration becomes a challenge. Listening sounds easy and obvious as well, but most companies are not expert as this practice. Active listening is an incredibly important tool that should be used to assess culture fit during M&As. It's essential to understand how a company began and how it has evolved from employees’ perspectives. The integration team should ask questions of employees, including questions about their careers, their greatest sources of pride, and a single thing they would change about the company if they could. These informal stories are where the organization’s culture and personality are truly revealed.

2. Do independent research

Informal research on the internet is a powerful tool for many reasons, including learning about a company’s culture. Of course, one bad employee review shouldn't sink a deal, but themes will emerge as you check into social networking, employee feedback sites, and the company's informal activity on various platforms. Reading these posts should give the acquiring company a feel for what the company celebrates, what it spends energy promoting, and, by direct extension, the true priorities that represent the culture of the organization.

3. Verify your understanding

This part of M&A is highly nuanced and very difficult to define. Every company is different and has different internal structures and monikers. Likewise, every company has different approaches to how the work gets done and what makes them successful. You must repeat what you think you’re hearing to confirm your understanding and leave behind all assumptions about how things should be happening in order to learn how these things are really working out (or not) in a different environment.

After acquisition, it's vital to monitor the success of cultural integration. One of the ultimate goals of many acquisitions is retention of talent, which requires frequently taking the pulse of the culture fit. There are a variety of different approaches to diagnose that fit including regular surveys, to reach a large number of employees, employee focus groups, or management interviews.

Company Culture in Action

Ensuring that an organization remains faithful to its stated culture is a process that should never end. The global pandemic and the resulting impacts on the labor market made it incumbent on all leaders to think about employees more holistically, while also refocusing on work as a part of total life.

As M&A activity continues to intensify, there is no question companies will continue to be challenged to stay connected with employees, especially when an M&A activity significantly increases the size of the team. It was especially difficult throughout this pandemic when the inability to travel meant there were no opportunities to visit employees or gather in informal settings.

At the end of the day, the way you promote your culture is through consistent communication and feedback using email, surveys, video messages, roundtable discussions, group chats and other channels that best suit different teams and locations to make sure the communication is accessible and inclusive for all. The whole company must be sold on company culture in order to make an integration successful, especially if talent retention is a key outcome of the investment hypothesis.

And equally important to being committed to a focus on culture, is also being able to recognize when two company cultures may simply be unable to coexist. Making the decision to walk away based on cultural incompatibility may be difficult, but in the long term, it is -- and will be -- for the best. When cultures don't align, employees may feel they won't continue to thrive causing existing harmonies to be disrupted or destroyed during the transition.

Overall, if you make sure to emphasize culture fit throughout your M&A decision making process, you'll ensure a cohesive end result that allows for employees to thrive in a new setting where they feel heard, seen and valued.