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Culture clashes in business usually result in little more than…
Culture clashes in business usually result in little more than temporary discord between parties. But when translated to an M&A (mergers and acquisitions) setting, such a clash is eminently more troublesome, given the high-stakes nature of merging two entities.
The history of M&A is in fact littered with transactions that failed because of an inability or unwillingness to grasp the importance of addressing culture. According to a number of surveys, between 50 and 75 percent of all post-merger integrations fail to meet their original objectives due to cultural clashes. Some sources put the failure rate above 80 percent.
Among the more high-profile examples of the impact of cultural misalignment on M&A success are deals such as Sprint-Nextel, MCI-WorldCom, AOL-Time Warner, Quaker-Snapple and Daimler-Chrysler. Cultural disparity has also been quoted as a potential difficulty in completed and proposed transactions, including Broadcom-Qualcomm, Amazon-Whole Foods, Disney-Fox and CVS-Aetna.
“The reason why many M&A transactions fail is predominantly because there is no or very little interest in the process,” contends Finn Majlergaard, chief executive of Gugin. “Key stakeholders are only interested in cashing in after the transaction, while the desire to secure long-term success is often small.
“But companies can pay a high price if they ignore cultural integration,” he continues. “Key people leave, customers flee and employee satisfaction plummets. The sad thing is that all this can be avoided if, from the beginning, companies acknowledge the need for cultural integration and realise that it is not their core competence to facilitate such an integration.”
Interestingly, this apparent disinterest flies in the face of a recent survey of top executives conducted by Deloitte, in which 76 percent of respondents stated that cultural compatibility is a key determinant of post-merger integration success.
So, why does culture matter? According to the Gallup report ‘Building a Culture That Drives Performance’, a company’s culture is key to unlocking its greatest potential. To help facilitate the unlocking of this potential, Gallup urges senior leaders to consider the items listed below to help them identify and leverage the functional aspects of their company’s culture, so its power can enhance their brand, improve business results and fulfil their organisation’s purpose.
“Corporate culture plays a key role in the success of an M&A deal,” says Zhenyi Huang, a Bayes Business School research fellow at City, University of London. “Cultural compatibility between the acquirer and target company contributes significantly to the likelihood of deal success and the extent to which the expected synergy value can be materialised in the post-deal stage.”
“With global M&A hitting new highs, more companies are pursuing deals, thus more will likely fail because their leaders either make cursory attempts at cultural integration or do not address the requirement at all.”
It is also important to note that the context of the deal drives the importance of addressing culture. “It becomes critical in a scenario where two large global companies with dissimilar cultures wish to quickly and completely integrate all aspects of their business,” explains Jim Plomer, transaction advisory services managing director at BDO. “Here, if culture differences are not addressed, the risk to the integration and realising deal value is extremely high.
“It becomes less critical in a simple bolt-on acquisition scenario in which the target of the acquisition remains autonomous,” he continues. “In between these end-member scenarios are numerous variations, but the impact of culture should always be considered.”
And yet, with global M&A hitting new highs, more companies are pursuing deals, thus more will likely fail because their leaders either make cursory attempts at cultural integration or do not address the requirement at all. Such ill-considered strategies appear all the more inadequate as we move further toward a post-pandemic environment.
Source: https://www.financierworldwide.com/culture-clashes-in-ma-new-perspectives
(a) If you were the Chief Consultant of Mergers and Acquisition, analyse THREE (3) risk factors associated in mergers and acquisitions.
(b) Propose TWO (2) cross-cultural due diligence in mergers and acquisitions.
