Culture: The Hidden Factor in Successful M&A’s

Corporations continue to merge, divide, spin and acquire at record pace: more than $2.5 trillion in mergers were announced during the first half of 2018 alone – on pace to surpass $5 trillion, which would top 2015 as the largest yearly total on record.1

There have been recent headline-grabbing failures, but deals that don’t make it to the altar are exceptions. Most transactions are approved by shareholders and regulators. However, an approved transaction isn’t necessarily a successful one. In his 2016 letter to Berkshire Hathaway shareholders, Warren Buffet wrote: “As is the case in marriage, business acquisitions often deliver surprises after the ‘I do’s.'” How true.

Why do these deals fall short? In a word: culture. Executives surveyed by Aon cited cultural issues as the leading reason M&A deals fail, second only to integration delays, and well above paying too a high a price and overlooking risks during due diligence. And with 70-90% of M&A transactions failing to increase value2 , the biggest challenge isn’t getting approve, it’s integrating cultures after the deal closes.

To help clients get the value they expect from M&A, Daggerwing has a culture-first integrated financial transaction offering: TransACT. From vetting targets through integration, we help clients focus on behavioral normals and ways of working that are critical to success. Our experience points to three things companies can do to ensure their transaction delivers promised value:

1. MAKE SURE IT’S A GOOD FIT FROM THE START. Successful companies use the due diligence phase to asses the cultures of M&A targets as well as their own, test their assumptions about culture, map the risks cultural issues pose to integration and determine if these can be effectively mitigated.

2. BE PURPOSEFUL ABOUT THE CULTURE YOU WANT POST-INTEGRATION. Whether there is thoughtful design behind it or not, the combined company’s culture will happen. The trick is ensuring it’s the culture you want. Successful companies carefully design and articulate the values and behaviors the new organization needs to achieve. These companies make a point of ensuring employees have a common understanding of what success is for the new company and are aligned around the ways of working needed to get there. The sooner this alignment happens, the sooner the transaction starts paying off. But culture cannot be handed down from the top. The most effective cultures are co-created with leaders and employees, which means integration planning needs to start well before Day One.

3. DOUBLE DOWN ON EMPLOYEE INSPIRATION. Transactions breed employee uncertainty at the precise time when the business needs to maintain or improve performance, but the bulk of communication efforts are often spent on selling the merits of the deal to external stakeholders. For deals to succeed, companies should spend as much or more energy communicating to employees about the promise of the new organization.

M&A activity will likely continue at its record pace. What can’t continue is the rate at which these transactions fail to deliver on their promise. Our TransACT integrated financial transaction offering is designed to close the gap. By including a focus on culture from beginning to end, we help clients ensure their transaction doesn’t just get approved; we help them ensure it succeeds.

  1. New York Times, July 2018: A Record $2.5 Trillion in Mergers Were Announced in the First Half of 2018 
  2. Harvard Business Review, June 2016: M&A – The One Thing You Need to Get Right

Michelle Mahony, Senior Principal

Michelle Mahony, Senior Principal

Michelle Mahony is a Senior Principal at Daggerwing Group. She is passionate about helping organizations navigate through transformational change, with an eye towards creating leaders and employees who are energized, rather than exhausted, by the opportunities change creates. Within this context, she helps clients foster cultures that deliver the desired experience for customers and enable employees to thrive, and she co-creates inspiring yet down-to-earth solutions to solve organizational challenges. In her spare time, she enjoys singing 70’s pop songs badly while playing her ukulele, buying old musty records and spending tons of time in the woods and on snowy mountains.

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