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Considering Company Culture in Mergers and Acquisitions

Company culture in mergers and acquisitions M&A

Mergers and acquisitions are a popular business strategy for organizations looking to gain a competitive edge, acquire new technologies and skillsets, or expand into new markets or territories. Mergers and acquisitions give organizations a chance for corporate restructuring. They can put organizations at an advantage while diversifying the business. M&A can indeed be a smart growth strategy. However, it’s important not to ignore the implications of mergers and acquisitions on company culture.

There are many ways mergers and acquisitions can be used as a growth strategy. They can fill gaps in client lists or service offerings, they can be an efficient way to acquire intellectual property and talent, and they can be a good way to leverage synergies. Additionally, they can help organizations to add a new business model. 

During the process of mergers and acquisitions, organizations need to have several considerations. It’s essential that an organization performs pre-acquisition due diligence. They need to have a strong understanding of where the gaps are between the two organizations. They need to look through the lens of operational throughput as opposed to asset valuations. 

There absolutely must be an evaluation of culture and how the cultures of the two organizations will mesh together. What is the decision-making style of the organization? What is the leadership style? Is there a willingness to risk new things or is there simply a focus on maintaining the current state? How do people in the organization work together? What are the core values and beliefs of each organization? These are questions that need to be explored. 

When the deal crosses the finish line, there is still work to be done. There must be a post-merger integration strategy. Best practices need to be identified and leveraged. There needs to be transparency and clear communication regarding benefits, compensation, training processes, and employee review procedures. Organizations don’t need to overestimate synergies. This will mean they never get the true value of the company. 

There needs to be time spent on cultural alignment. There are four essential steps to this process: assessing and analyzing culture, identifying relevant stakeholders, defining a new desired culture, and designing a detailed change and communication concept. 

It’s important to establish ownership for cultural change. There should be representatives from both companies involved in a dedicated integration team. A dedicated integration team will be better equipped to handle any unexpected events that may threaten this process. 

Leaders from both organizations need to be very clear about what the desired new culture will look like. They must understand how it fits into their business strategy. Will both organizations remain separate entities with their own distinct cultures or will one company dominate and come to absorb the other? Or will there be a new combination of the two? There needs to be a clear strategy in place.

Let’s look at the example of the 2000 mega-merger between AOL and Time Warner. At the time, it was the largest merger in history as AOL bought Time Warner for $165 billion.  Billionaire investor, Steve Case, was the lead architect of the deal, and he recently said, “Having a good idea is important, but being able to execute the idea is even more important, and that comes down to people and priorities, and we were unable with the combined AOL Time Warner company to get that side of it right.”

When the two monopolistic organizations merged, there was a major culture clash. AOL found Time Warner to be too old-fashioned, and Time Warner found AOL to be a threat to their business. There was no sense of trust between the two organizations.

It’s important to acknowledge that each portfolio company has a different culture. So the question becomes how do you standardize that culture across your portfolio? How do you acknowledge the uniqueness of each business but standardize the operation? In the process of mergers and acquisitions, POWERS assists organizations with implementation and execution, helping with the process of capturing opportunities and realizing them. Learn more about our private equity improvement consulting.

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About the Author

Justin Pethick

Senior Vice President of Strategy & Business Development

Prior to joining POWERS, Justin held multiple business strategy consulting and sales roles for private equity and large financial companies. Most recently, he worked for a technology and process improvement firm that worked with Fortune 500 companies like Walmart, Target, and Nike. Before his career in business, Justin played professional hockey. He has kept up with the sport by passing the puck for the Texas Titans, a minor league hockey team that donates their proceeds to local charities that benefit veterans.