Why culture and M&A should go together on every CEO's agenda

Over 60% of M&A transactions and investment activities fail to deliver their anticipated business case value (How to gain value from M&A, 2019) as growth and synergy targets do not materialise as intended. Research and executive feedback consistently point out an important cause of this: the failure to make different corporate cultures work together.

So what is culture? It is often stated that an organisation’s greatest asset is its people. We suggest elaborating on this to say that an organisation’s greatest asset is its people who share a common goal and collaborate, enabled by corporate culture. That’s why at Deloitte, we define culture as a company’s shared values, beliefs, and behaviours that influence how work gets done.

Based on our experience with complex cross-border M&A transactions, this short article shares our insights about how executives and M&A professionals can use corporate culture to drive deal value.

The impact of culture on M&A and corporate value creation

Research shows the direct impact of culture on corporate performance. Organisations ’with a soul’ significantly outperform the S&P 400 not only in terms of greater employee engagement and retention rates but also regarding long term financial profitability and returns. This also applies to M&A: Deloitte’s 2020 CFO survey found that cultural changes are seen as highly important by 31% of CFOs in Switzerland when it comes to M&A execution.

Swiss SME leaders understand this. Roman Řezníček , Chairman of the Board of
Directors of Suntel Group, recognises that:

People are the most important asset that a business can have.

He considered an acquisition as a success when “we reach an understanding of [a company’s] culture, employees and values”. In his experience:

One of the main reasons why mergers and acquisitions fail is that buyers underestimate the corporate culture and what it takes to integrate the business.

BlueOrchard’s Peter Fanconi has similar views, sharing in Deloitte’s 2020 survey on M&A activity in the Swiss SME sector that he believes that “culture and [a] shared vision for the future” are key factors when it comes to successful M&A deals in the asset management.

Roberto Micelli from Deloitte Switzerland’s M&A Integration & Separation team shares a recent outside in experience:

A Swiss Private Bank struggled to get their client facing front office team and the enabling back office staff to collaborate well. Both teams just did not feel that they were sitting in the same boat. I believe that different behaviours were caused by objectives and incentives which were not aligned. This was amplified by the different locations and languages of the two teams across Switzerland. In the context of the bank’s strategic ambition to serve clients better and faster, this was a challenge.

Now, how can executives leverage culture to achieve their value ambitions from M&A?

Conclusion

Culture is a crucial enabler for value creation from M&A. The strategic and business objectives of a combined company only materialise if people from both organisations collaborate constructively because their beliefs, values and behaviours are aligned and fit to common objectives.

The importance of culture makes it an imperative for every executive agenda – during a deal and after deal completion.