Safeguarding M&A deal value


Safeguarding M&A deal value

Managing culture clash

Culture is inextricably linked to performance, especially in an M&A context. The question is not if—but how—companies should manage culture to safeguard the value of an M&A deal.

The culture-performance connection

Organizational culture can have a significant impact on company performance. Indeed, decades of research supports a direct link between culture and indicators of financial and nonfinancial performance. While the exact formula relating culture and performance has proved elusive, it is clear that companies should consider culture as one of the key levers they can pull to sustain and improve performance. By effectively understanding and shaping their culture, companies can drive business strategy and achieve their operational and financial objectives.

Emotional connections catalyze and sustain integration

While many leaders recognize the critical role that culture plays during post-deal integration, the actual mechanics of transforming culture are much less widely understood. However, emotions may hold the key. As Deloitte observed in a recent report: “Emotional connections are especially important for getting people to change their behaviors because habits are tough to break with reason alone….”

In an M&A context, this likely means that it is more important than ever for leaders to make sure their integration strategy resonates emotionally with the employees who will bring it to life. A powerful dual narrative that draws on emotional connections can help to transform the natural emotional response to a merger announcement—a mixture of excitement and trepidation—into a commitment to a higher purpose.

Global deals: Unprecedented complexity and cultural variability
It can be difficult to manage cultural nuances in deals that span multiple countries or regions. During integration planning, deal teams should account for both companies’ geographic and cultural variabilities, and use them to develop integration strategies to bridge any gaps. However, integrating company cultures is not the same as integrating business processes—it is not possible to simply select best practices and rationalize workflows. Leaders need to take into account both companies’ distinct cultures and subcultures, which likely developed organically over time and select positive aspects from each to incorporate into the new company’s culture.

Managing cultural issues throughout the deal lifecycle

Many of the most successful acquisitions will identify each company’s core cultural strengths and acknowledge cultural differences early on—preferably as soon as the due diligence stage, given the deal constructs. For culture change to be sustainable, issues must be managed throughout the deal’s life cycle, starting before the merger is announced, accelerating during the first 100 days of post-deal integration, and continuing even after the integration is well underway.

Preclose preparation: Developing a cultural Integration strategy
A cultural integration strategy should align with leaders’ future-state vision and support the deal’s value proposition and targeted business objectives. Merging entities may choose to maintain separate and distinct cultures with little or no overlap; synthesize an entirely new culture; combine the existing cultures by incorporating the best aspects of both; or adopt the dominant and status quo culture (Figure 1).

First 100 days: Assessing cultural variability and opportunity areas
It is critical that cultural integration teams develop an objective understanding of the cultural variability that exists both between and within consolidating companies so that cultural interventions can be targeted when and where they will be most effective. Cultural assessments use qualitative activities, such as interviews and focus groups, and quantitative diagnostic tools to provide the information needed to understand and act on cultural variability.

Deploying a diagnostic tool, such as Deloitte’s CulturePathTM facilitates an objective assessment of the organizations’ current state and helps define culture in tangible and measurable terms. A diagnostic tool like CulturePath can analyze core indices that are foundational to organizational culture and differentiating indices that can ultimately drive differentiated business performance. In the first 100 days after deal close (or before close, if possible), it is important to identify where each company falls on the spectrum of core and differentiating indices to make the decisions needed to achieve business synergy targets.

Year one and beyond: Sustaining the new culture
Sustaining a changed or new company culture is not a one-time project that ends at Day 100; it requires ongoing action plan execution and reinforcement during year one and beyond. Based on the results of the cultural diagnostic assessment, the integration team should develop short-and long-term plans to drive alignment to the combined company’s end-state vision. Effective culture plans typically include quick-win projects, as well as long-term strategies that provide the infrastructure and processes to drive and sustain the desired behaviors. Similarly, effective culture plans are targeted. Tools like CulturePathTM allow leaders to identify which divergent groups should be focused on and which aligned groups can serve as role models. Like any major initiative, these culture plans require strong and visible executive sponsorship.


Use culture to take integration to the next level

Companies should skillfully manage the cultural aspects of global and regional M&A to meet immediate commitments to the investment community and build a sustainable foundation for the future. By addressing culture early in the deal life cycle, consolidating companies have a greater chance of realizing the transaction’s anticipated value.

Early alignment with the desired future-state cultural vision and integration strategy, and smooth translation of the vision into action plans can better enable companies to safeguard the short-and long-term value of their deals. The ultimate goal for a new company is to emerge from the integration process with a high-performing, sustainable culture with employees who are committed to growing, and succeeding against the organization’s strategic priorities. This is no easy task, especially in the context of a global deal. However, it is something that leaders should and need to do—and do well—to deliver on promised deal value.

Contact us

For more information, please contact:

Ami Louise Rich
Senior Manager
Deloitte Consulting LLP

Caitlin Mahoney
Deloitte Consulting LLP

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