Culture in M&A

Steve Coote - Director, VSC GrowthJul 2013

Copyright © 2013. All Rights Reserved. VSC Growth

… 5 reasons why it matters

Corporate culture is, “...the water in the fishbowl of any business. Employees are immersed in it, inundated with it, but unconscious of it – at least, until things change. When one company acquires another and the water from those two corporate fishbowls is combined, it often results in a shock to the system for everyone involved.”

– Mendenhall & Galbreath

Culture is at the core of the way companies work and it embodies the underlying values, behaviours, and resulting style of the leaders and employees. Studies consistently show that poor cultural fit between merging firms is a key contributor to some of the most destructive and expensive failures.

Being able to articulate cultures of different companies and sub-groups in advance of a merger is one of the most powerful evaluation tools available to M&A practitioners.

Here are 5 good reasons why you should include cultural analysis in your M&A activities….

Why Culture Matters

Significantly improve M&A success rates and reduce failuresHigher success rates increase company earnings, improve returns to shareholders, and align with executive incentives. Cultural Due Diligence is used to predict the performance of the merger (or acquisition) in advance by getting to know the merger partner better than they know themselves, and then predicting their performance within your firm.

1

Enjoy smoother merger implementationsMerging firms that have a tight cultural fit will find implementation easy because people speak the same language, share similar viewpoints, and can agree on the way forward with limited effort. On the contrary, merging firms with a cultural misfit requires a more comprehensive approach and increased management “bandwidth”. Understanding the degree of cultural fit in advance enables formulation of integration plans that deliver success.

2

Achieve Post-Merger Synergies sooner with less frictionBy addressing cultural factors before signing, both firms are free to start work on upside opportunities from Day 1 with less distractions and disputes. In fact, bringing the partner “into the tent”, helping them understand their culture, your culture, and how the two are likely to interact post-merger, wins “hearts and minds” and builds your firm’s M&A reputation in the market.

3

Ability to tackle more complex strategic dealsSome deals have a great strategic logic but have high risk due to a range of issues that increase complexity (e.g. cross-border M&A, entering new markets or sectors, or concerns over leadership depth). By assessing the multiple layers of cultural “fit” (e.g. national, industry, organisational, individual) and considering a range of response scenarios, new types of strategic acquisitions are possible.

4

Improve Leaders’ ability to achieve M&A outcomesLeaders centrally involved in the post-merger structure have a significant bearing on M&A success or failure. Choosing and supporting these leaders is easier when their individual cultural “fit” is assessed as part of due diligence and support is targeted at helping them positively influence the desired M&A goals.

5

M&A Culture Services Service Features Client Benefits

Strategy Development Strategic Cultural

Assessments

Map cultural profiles at multiple levels (national, industry, organisation, target, individual)

Assess scenarios & respective effort (resources, time, dollars) required to “bridge” cultural gaps for strategic acquisitions

Inform strategy and target selection

Better informed on strategic fit with improved ability to tackle more complex deals with high potential payoff.

Due Diligence Phase Cultural Due

Diligence Post-Cultural DD

workshop (if required)

 

Map multiple cultural profiles Flexibility with cultural dimensions assessed Consider current and preferred cultural states Scored by both leaders and employees Methodology to engage other stakeholders Assess culture congruence & strength Cross reference with other DD investigations Risks/Opportunities assessment On-line or face to face surveys Fast turnaround of results

Improved M&A success rates by using cultural due diligence to predict the performance of the merger in advance. “Get to know the target better than they know themselves”

Our M&A Culture Services (1 of 2)

M&A Culture Services Service Features Client Benefits

Integration Planning Phase Cultural inputs for

post-merger integration plans

Recommendations on cultural factors for implementation

Guidance on activities that support or shape culture Informs selection of appropriate structures & systems Stakeholder analysis and communications Holistic approach to improve sustainable results

Win “hearts and minds” early and strengthen your firm’s M&A reputation

Post-Merger Integration Integration

support & coaching

Guidance on communication strategies and styles Easy to understand proven process & models with

graphical representation Ability to identify and address sub-cultures Culture pulse surveys

Start working on upside synergies from Day 1. Achieve post-merger synergies sooner and with less friction

Leadership Support  Aligned Leaders

360 peer surveys raise self-awareness Personal profiles overlain with company profile to

identify strong fit and development areas Supports key leader appointment decisions Supports leadership & succession plans

Improve Leaders’ ability to achieve M&A outcomes

Our M&A Culture Services (2 of 2)

Achieve better outcomes on your next M&A deal. We work direct with acquirers and collaborate with M&A consultants. Call or email to find out more…

Steve Coote, DirectorPhone +61 412 148 428steve.coote@vscgrowth.com.au

Jenny Maree, ConsultantPhone +61 413 179 854jenny.maree@vscgrowth.com.au

www.vscgrowth.com.au