Culture issues derail M&A transactions at ‘alarming rate’: Survey

'How leaders behave, not just what they say' top driver of corporate culture
|hrreporter.com|Last Updated: 10/29/2018
culture
Deal makers said 30 per cent of deals fail to ever achieve financial targets, due to such culturally related issues as productivity loss, flight of key talent, and customer disruption. Shutterstock

Forty-three per cent of mergers and acquisition transactions worldwide experience such serious culture issues that deals are delayed, terminated or purchase prices are negatively impacted.

In addition, 67 per cent experience delayed synergy realization due to culture issues, according to a survey by Mercer.

“If the global deal-making community intends to drive economic value for shareholders in mergers and acquisitions transactions, our research is crystal clear — culture matters,” said Jeff Cox, Mercer’s global M&A transaction services leader.

“When looking to transform the workforce for the future of a newly formed organization, simply ignoring culture and employee experience is not an option.”

“Deal-makers can mitigate mergers and acquisitions risk and drive deal value by putting culture at the center of business transformation,” said Cox. “Culture is a firm’s operating environment. It defines an organization, allows effective change of business strategy, and can provide a platform to attract and engage the right talent.”

Drivers of culture

Three-fifths (61 per cent) of respondents selected “How leaders behave, not just what they say” as the number one driver of organizational culture.

This finding was even more pronounced in Canada as 71 per cent of respondents specific to this country rated it as their number one driver, found Mercer’s report Mitigating Culture Risk to Drive Deal Value, based on interview responses from more than 1,400 mergers and acquisitions professionals in 54 countries.

“Governance and decision-making process” (53 per cent) and “Communication style and transparency” (46 per cent) also ranked highly.

Deal makers also said that 30 per cent of deals fail to ever achieve financial targets, due to such culturally related issues as productivity loss, flight of key talent, and customer disruption.

Human resources professionals rate “collaboration” (69 per cent) and “empowerment” (64 per cent) as the most important components of culture, while executives rate “governance/decision-making process” (60 per cent) as the most important.

Turnover concerns

In Canada, a majority of respondents (89 per cent) would consider leaving a job because the culture was not a good fit for them. Canadians have also experienced culture stresses in mergers: 62 per cent of respondents reported experiencing integration plan adjustments due to issues merging company cultures.

“Organizations place a tremendous amount of focus and resources on mergers and acquisitions, yet so often fail in part because leaders neglect to address potential consequences of merging company cultures,” said Ilana Hechter, a partner in career business at Mercer Canada.

“Companies can significantly enhance their success in these business-critical moments by educating and supporting leaders about the cultural implications.”  

Solutions

The report also offers a three-step plan on how to best mitigate culture risk:

1. Clearly articulate deal objectives and risks.

2. Insist on confirmatory cultural diligence.

3. Prioritize culture, especially post-signing through first 100 days.

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