Does Culture Matter to Acquirers?
Whether you know it or not, your company has a “culture”. A set of norms that governs how you make decisions, face clients and respect hierarchies in your office. Many companies are aware of this culture and seek to develop it – if so, you probably think your culture is “pretty good”.
When it comes to an acquisition, of course a company that meets all of your acquisition needs (size, geography, product set, IP) and has a close cultural alignment is better than one that does not. But what if the almost-perfect acquisition target has a cultural mismatch? What are your options?
1. Pass on the deal. If you can assess that the negative value of the different culture will impact the other metrics of the deal, particularly the financial ones, then this may be the proper choice.
2. Proceed on the deal, haircut the asking price and plan for some disruption in integration. This is perhaps the perfect “Corporate Development” plan because for professionals it hits the big things we control: achieving objectives and pricing in risk. But, it adds complication to the analysis and increases the deal risk through the seller potentially rejecting the terms.
3. Proceed on the deal confident in the ability of your own winning culture overcoming any issues created by the mis-match. Typically this involves deploying extra senior management and HR employees to “sell” the acquired employees on the benefits of their new culture….but success is not assured.
4. Proceed on the deal and ignore culture. After all, if the strategy is to expand product, gain IP or take out a competitor, how the acquired company feels is irrelevant. Safeguard your risk by taking out appropriate non-competes with key staff.
5. Aware of the cultural differences, carve out a “safe zone” for the acquired company / division / product and let the acquired culture continue to grow. This is more common when a large company acquires a smaller, more innovative company and the rationale for the deal involves the continued focus and involvement of key people resources. This options sounds good, but over time (and not a long time) becomes an issue of jealousy by existing employees who are not eligible for the same “innovative perks" as their new peers.
6. Proceed on the deal and do (practically) nothing. Embrace how the acquired company can “teach you things” and help you “think differently” and treat all acquired employees “the same as everyone else”. Sadly, this is still the most common approach. It blends the worst of wishful thinking (“we’ll all just get along”) with the worst of downside management (weak non-competes / earnouts). In the long run, the larger company’s culture wins out, as trusted hands populate the new company and disillusioned target employees leave. Maybe this doesn’t matter (see #4), but without forethought, it destroys value.
Ultimately, like most successful M&A plans, managing the the issue of culture comes down to awareness and planning. How are you planning for culture?
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