A poor work culture can thwart mergers and acquisitions

Research by Mercer suggests that dealmakers must put culture at the centre of business transformation.

New research from global consultancy firm Mercer has revealed that 43 percent of mergers and acquisitions (M&A) transactions worldwide have experienced cultural fit issues.

These issues were so serious that deals were either delayed, terminated or purchase prices were negatively impacted.

A bad cultural fit can be major dealbreaker, as every person asked by Mercer researchers said they would consider leaving the company if the company culture changed for the worse after a merger or acquisition.  

“Culture is a firm’s operating environment. It defines an organisation, allows effective change of business strategy, and can provide a platform to attract and engage the right talent,” said Jeff Cox, Mercer’s Global M&A Transaction Services Leader.

The report by Mercer, titled ‘Mitigating Culture Risk to Drive Deal Value’, features survey and interview responses from more than 1,400 M&A professionals based in 54 countries. The respondents in the research have collectively worked on more than 4,000 deals in the past 36 months on both the buy and sell sides.

“If the global deal making community intends to drive economic value for shareholders in M&A transactions, our research is crystal clear; culture matters,” said Jeff. “When looking to transform the workforce for the future of a newly formed organization, simply ignoring culture is not an option.”

In addition, 67 percent of the research respondents experienced delayed synergy realisation due to culture issues.

Additional findings from Mercer’s report include:

  • 61 percent of respondents selected “How leaders behave, not just what they say” as the number one driver of organisational culture.
  • “Governance and decision-making process” (53 percent) and “Communication style and transparency” (46 percent) also ranked highly.
  • Deal makers also said that 30 percent of deals fail to ever achieve financial targets, due to such culturally-related issues as productivity loss, flight of key talent, and customer disruption.

The report also extensively examines some of the varying attitudes and opinions of respondents based on role, industry, demographic and geography.

For example, Human Resources professionals rate “collaboration” (69 percent) and “empowerment” (64 percent) as the most important components of culture, whiles executives rate “governance/decision-making process” (60 percent) as the most important.

While alerting the global deal community to the culture risks endemic to M&A transactions, the report also offers definitive action steps as to how to best mitigate culture risk, including a three-step plan:

  • Clearly articulate deal objectives and risks
  • Insist on confirmatory cultural diligence
  • Prioritise culture, especially post-signing through first 100 days

“Deal makers can mitigate M&A risk and drive deal value by putting culture at the centre of business transformation,” said Jeff.