After the recent articles published in this section of Eneas Magazine, where we have focused on the more “human” and “subjective” sides of the world of Mergers and Acquisitions, or M&A, in this new issue of our quarterly magazine we would like to address another very important aspect of the M&A operations, in this case one that is rarely discussed when it comes to these types of transactions, but which obviously hold a specific weight, especially for those situations and issues that arise immediately after this type of operation. This time we will talk about the importance of corporate culture in M&A transactions.
As anyone who is at all familiar with the business world knows, every business, every company, very often even every factory, workplace or delegation, have their own idiosyncrasies and business culture; and like every other area of our society, families, friendships, a region or a country, they have their own codes of conduct, their own ways of dealing with situations that occur daily, their own ways of organizing work, of approaching hierarchical and social relations, ways of communicating; ultimately, their own culture, which certainly leaves an important mark on both the employees and the organization as a whole.
Therefore, the culture of an organization is an inherent aspect of it, with an important specific weight. And putting it into a merger and acquisition context, we can see that one of the most complex challenges of this type of operation is related to the clashing of two cultures that, in most cases, are completely different.
In fact, a clash of corporate cultures presents a significant obstacle to achieving successful integration following an acquisition or merger, and in many cases is one of the reasons that an operation of this type fails at the end. This is a significant aspect, but it shouldn’t lead to exaggerating the importance of the merging of corporate cultures either, because although cultural integration is important, it always serves as an excuse when something does not work, therefore neglecting an in-depth look at the cause of the failure.
In any case, in answer to questions of why corporate culture is an important aspect of an M&A operation, we could basically say that because when a company is acquired by another, beyond the equipment, facilities or customers, they are buying its people – the company’s people are being bought, the acquired company’s team. And therefore, it is also the way these people have acted, worked and behave up to this time, that has been bought, along with their values and codes of conduct, which may have worked very well (or not so well) whilst they were in line with those of the purchased company, but which, from that moment on, will change, and as a consequence, this change could affect the outcome and the value of the work of these people.
In the end, merging two companies is integrating two human teams with different corporate cultures, so a key skill for the directors of the merger to possess is respect for the people and their business culture; especially with the realization that what generates a fundamental part of the company’s value is their human teams, and retaining the acquired company’s employee talent is critical to building success in the moments following the operation, to avoid destroying value with the sum of the two companies.
Although companies may be very similar in appearance, and can give the impression of being the perfect match, they usually turn out to be quite different in both operational issues and leadership styles, organizational systems, in how to cope with change or in their methods to solving conflicts. Because, after all, a merger or buyout of a company is like a wedding, much emphasis is placed on finding the ideal partner, in the preparation, in the attempts for everything to go well, but we must not lose sight of what is important, true cohabitation, which is the real challenge that begins right after the “wedding, after the operation.
From this moment on the “cohabitation” of the two companies begins, based largely on the company culture that is generated or “imposed” after the acquisition. If the change is traumatic, keeping with the marriage analogy, if for example ‘Partner A” was used to having orange juice for breakfast every day, and then “Partner B” was used to only having coffee for breakfast, and there is no agreement to reaching a middle ground or to “convince” the other side that one of the two options is the better one for the future, therein lies the conflict, and therefore there will be loss of product value because of poor or inexistent “cohabitation” between different business cultures. So one of the key issues when facing an operation is to focus not only on the pre-operation aspects of an A&M but also on planning how the post-operation period will be managed.
Beyond choosing to integrate, merge or impose a particular culture on the acquired company, we should not lose sight that the development of a corporate transaction of this type can be a great “excuse” to assess the culture of the acquiring company itself, identifying desired and non-desired behaviours and aspects and develop or “import” beneficial developments for the organization, to involve employees more, increase their commitment or better define leadership roles.
At this point, having the help of expert advisors such as ENEAS Advisory Services in any corporate M&A operation is essential to ensuring the success of the operation, as the study of both cultures, detecting potential problems or critical points, means mitigating or solving them, etc.; it also implies, among other advantages, that managers and owners are allowed to have time to focus on both their day to day work, without neglecting the management of the company, and on planning across all levels of the company and on all post-operation aspects. This in turn means more time to plan how the integration of the operative part will work as well as the different cultures of each company. Planning if the operation´s breakfast will serve up only orange juice or will also include coffee.
