The Dangers of M&A on Culture and How to Uncover Differences

Due diligence is done, the ink not even dry on the paper, both parties have sent out a press release to announce their excitement to buy or to be bought. The kick-off day has been defined, the executive team gets reshuffled, and the tactical integration team is staffed, most often mainly with representatives from the acquirer.

After day zero, those integration task forces and the operational leaders put blood, sweat, and tears into making the newly formed organization work and yet often don’t achieve the forecasted targets. Companies report a myriad of symptoms: unpredicted pushback from the market, customers feeling burdened by the integration work, a gradual or steep decline in operational performance, executive arena fights, and loss of critical talent.

The new additions experience the acquisition as a hostile take-over and the integration phase as an overwhelming tsunami of new procedures and guidelines that are not adapted to their context and operational reality. Many people on all levels in the organization testify that the new culture feels foreign. They were initially attracted to one culture – its lived values, its leadership style, its written and unwritten rules – and cannot find any of it with their new employer. There is often no time to mourn what feels or is lost.

When we interview executive leaders and middle managers, they sometimes state that they feel they have lost their grip on their company culture.  A deterioration of culture after an M&A can manifest itself in different forms. We see companies – often unintentionally – killing the culture of the acquired partner, leaving them feeling subject to a non-negotiable take-over. We also regularly witness a general regression in the cultural maturity of the entire combined organization.

Even when the due diligence phase included a cultural compatibility assessment, there is often little time and reduced access to the courted party, to dig deeper and uncover the deeper systemic dynamics and entanglements. As the acquirer is sometimes equally blind to their own culture, its blind spots, and pitfalls, cultural compatibility turns out very different when it comes to the actual integration days and months. A fundamental cultural clash might jeopardize integration success.

One of our clients saw themselves as entrepreneurial, fast, and innovative. The acquired company experienced them as bureaucratic, slow, and stale.

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It is critical to go beyond mapping the technical base, asset network, product portfolios, financial policies, HR procedures, and client-relationship model, in both the due diligence and integration phase. There is also a need to really get to know the underlying identity of the acquired organizational system: its timeline, the critical events that have shaped its identity, the underlying dynamics currently at play. It is equally important to be fully honest about your own in order to have an accurate view of the cultural compatibility and the critical levers going forward.

There are many questions to ask. Taking the time to engage in a dialogue and hear the real answers and stories will accelerate the integration process afterward. The technical workstreams in the integration master plan will provide you with the technical answers. If you add systemic questions to the mix, it will help to surface the roots of seemingly intractable behavior and predict potential resistance to change and future cultural roadblocks.

The list below is just a starting point to uncover the fundamental differences between the two identities and cultures. These are the areas where cultures can clash or appear incompatible, which is why it is so critical to uncover and name them:

Purpose

  • What was our/their founding story?
  • What is our/their current purpose, the reason to exist? What is society inviting us/them to do?
  • What are our/their guiding principles?
  • Which events on our timeline have shaped our/their identity?
  • What led to this M&A?
  • For the acquirer: what is this M&A an excuse for? What are you trying to buy? How come you lack or lost it? Is there a way to recover it, instead of buying it?
  • For the acquired company: what is at the root of being up for sale? What strategic decisions led you here?

Connection

  • What is our/their narrative that connects all stakeholders to that purpose, that engages them in a dream, in a story, in a new reality?
  • What is our/their vision, the one that comes with personal commitment and tough choices?

Inclusion

  • Who belongs to our/their organizational system? What does it take to belong?
  • What is our/their organizational design, and how is it tailored to the purpose?
  • What has made us/them successful? It might be because of a specific agile org chart or a highly connected relationship structure.
  • Where did we deviate from what the optimal organizational structure would be?

Order

  • What are our/their (often unspoken) criteria to define order in decision making? It might be based on job titles, levels, tenure, or nationality, on contribution to innovation, outside perspective, and job rotation.

Exchange

  • How is our/their company’s vitality?
  • Is there flow, energy, rumble, creative conflict, diversity of thought? A high level of trust, cross-fertilization beyond the company gates?
  • What has been the cost of change, and who paid the price?

Only when we understand the history and true motives of the acquirer and the founding story, timeline, and current identity of the acquired party, can we consciously shape the new culture. Not as an extension of the dominant culture, not as a compromise or half-hearted combination of both cultures, but as the one that matches the purpose and sets the newly formed organizational system up for success.

Mieke Jacobs has more than twenty years of industry experience and has been an adviser to multinational corporations and executive teams in many different industries. She has been involved in several strategic shifts in Fortune 100 companies, including global operational excellence and transformational change programmes, and the entrance into new or adjacent industries through mergers and acquisitions. She is one of the co-authors of a new book EMERGENT – The Power of Systemic Intelligence to Navigate the Complexity of M&A.

Paul Zonneveld has over twenty-five years’ business experience, teaching and applying family and organisational constellations and systemic intelligence. His unique expertise in understanding systems enables him to offer insight into how to manage change and transformation for leaders of large companies, those who find themselves in complex situations or those going through M&A. He is one of the co-authors of a new book EMERGENT – The Power of Systemic Intelligence to Navigate the Complexity of M&A.

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