Culture in M&A: Managing culture change to enhance deal value

M&A deals often do not go smoothly at all. Many are delayed, terminated, or fundamentally harmed during the deal-making process, whereas the failure rate for completed and implemented deals is between 70% and 90%¹. Why? Because leaders often do not give culture the attention it warrants.

Deloitte strongly believes that cultural integration is key to making a deal successful, including in financial terms. But cultural integration does not happen by itself, and implementing new policies, systems, and structures is not nearly enough. Companies that do integrate cultures successfully follow three best practices:

Realise higher deal value

Research has shown that companies that consider cultural aspects during the M&A process tend to realise 30% higher levels of innovation. But integrating two cultures involves overcoming a variety of challenges. The top three pitfalls Deloitte currently sees in the Swiss market are:

Cultural misalignment can hurt your deal before, during, and after the transaction

Organisational culture results from underlying values and shared beliefs, often unconscious and invisible, providing unwritten rules to employees that define the way things are done in the organisation. As soon as the deal is announced, a company’s culture starts to be transformed.

Deloitte’s experience suggests that the best way to prepare, execute, and sustain a smooth cultural integration is to apply a four-phase approach with clearly defined activities / interventions at each stage:

Tangible tools to help you with culture assessment during transactions

Deloitte’s “Behaviour First Change” can provide a valuable framework when seeking to transform an organisation’s culture and explicitly change employee behaviour. Behaviour First Change considers five different aspects (First –Fundamentals, Incentives, Relationships, Stories, Tools) and can be applied in various M&A contexts such as job movements due to structural changes, workplace transformation, or adoption of new technology. Carefully designed interventions such as nudges have been found to help individuals adopt a certain behaviour without taking away their freedom to choose.

To support deal value realisation, Deloitte proposes using a combination of data-driven diagnostic tools throughout the whole M&A lifecycle. One of them is CulturePath^TM. The CulturePath^TM methodology leverages eight indices for leaders to define, measure, and influence their organisational culture. These are divided into core indices that encompass the overall business strategy and differentiating indices that directly impact overall business performance.

CulturePath^TM delivers unprecedented visibility into an organisation, enabling leaders to drive ongoing change in the areas that matter most to their business. Culture-related activities are mapped directly to the key phases of the M&A lifecycle, contributing to a holistic approach to managing M&A activity within the broader business strategy. Further details on the benefits of leveraging CulturePath^TM are the following:

• Access deep insights about organisational culture before deal announcement
• Establish consensus on the go-forward cultural vision and business objectives
• Explore real-time analytics & perform comparative analyses through the interactive dashboard
• Track progress over the period of change

To fully embed culture into the transaction, various key individuals and areas must be involved. Deloitte facilitates integration team workshops, culture future-state visioning workshops, and leadership action labs for appropriate leaders and teams in the organisation. Deloitte also has available a host of short- and long-term action plans, communication plans, and accelerators (e.g., upskilling sessions for culture agents, culture playbooks, and change networks) to effectively drive the cultural change (see here for another blog post on state-of-the art change management tools and accelerators).

A success story from the Swiss market

Deloitte provided assistance to a large global pharmaceutical company in its integration with another smaller global company. The two organisations differed greatly in their cultures. While the buyer organisation was known for its decentralised governance processes and consensus-driven culture, the target organisation was much smaller, with centralised governance and a tendency to act fast in response to top-down decisions.

The objective was to create a new organisational culture that would leverage the best of both companies, supporting talent retention and leveraging capabilities from the buyer’s organisation to accelerate the target’s growth.

Deloitte’s strategy had two main elements. First, to help the buyer in its quest to empower the target to embrace a more regional and national-led business culture. Second, to incorporate in the buyer organisation the target’s agility, speed in decision-making, and entrepreneurial mindset. In order to do so, Deloitte delivered a cultural transformation process with the following activities / interventions:

Authors

Footnotes

¹Sanchez, Carol M.; Joshi, Mahendra; and Mudde, Paul, "Improving the M&A success rate: Identity may be the key" (2020). Peer Reviewed Articles. 42.
²Deloitte Review Issue 16: Becoming Irresistible: A New Model of Employee Engagement (Josh Bersin).