Cultural Fit: A Hidden Key to M&A Success

One oft-overlooked issue in M&A deals is hard to explain, and even harder to assess: cultural fit.

The list of reasons a deal falls through is as predictable as it is long. Yet one oft-overlooked issue is harder to explain, and even harder to assess: cultural fit. Understanding your company’s culture is hard enough. Finding ways to help it successfully merge with another company can feel nearly impossible. Two companies do not have to be identical, but they must share some similar cultural values. Otherwise your staff, customers, and other key stakeholders may jump ship in a fit of rage as soon as they get the chance.

One of the easiest ways to assess cultural fit is to look to a few key cultural signifiers. These reveal significant information about each business, and can help you predict how the merger will proceed. Some factors to weigh in mind include:

Strategies and Symbols

This includes many seemingly disconnected components of your business, including:

  • Each entity’s vision, value statements, mission, and ethos
  • Brand identity, reputation, and connotations
  • Business operating strategy and model
  • Working environment, including time off, pay, corporate culture, and physical environment
  • Staff norms

Operational Standards and Processes

  • Hierarchy, both formal and informal
  • Decision-making styles
  • Access to information
  • Information gatekeeping
  • Spending decision-making
  • Clock speed
  • Work-life policies (kids at work, paid time off, telecommuting, pets at work, etc.)

Core Values, Cultural Norms, Historical Behaviors, and Unwritten Rules

  • Contradictions between written documents and actual expectations
  • What gets rewarded and punished at work
  • How the entity responds to crises—blame, planning, communication, secrecy, or something else?
  • Legends about the entity’s history and founding
  • Political involvement

With a bit of research, it’s possible to get a strong feel for a company’s culture. Every merger involves two entities with different, and potentially contradictory, cultures. That doesn’t have to be a deal breaker. What matters is whether the distances can be bridged. It’s often best to defer to the company that creates the friendlier and more pleasant environment. For instance, if one company offers more paid time off, the best option may be for the one with less paid time off to adapt, since this will likely result in happier employees.

Good advisors can get mergers much closer to a good cultural fit. They’ve seen it and done it all before, and they can help you assess whether a cultural difference is a clash, or a gulf that can be narrowed.

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