The Importance of Cultural Due Diligence in Mergers and Acquisitions

Guest Contributorby Lizz Pellet | Posted | Culture

The Importance of Cultural Due Diligence in Mergers and Acquisitions

2013 was expected to usher in the kind of mega merger and acquisition (M&A) activity we saw in the mid-2000s.

While the predictions turned out to be very wrong — with 2013 merger and acquisition activity on track to be down 3.4 percent globally from last year — it's still good to look at the elements that make for a successful merger. After all, mergers bring with them a host of challenges as companies work to integrate their businesses, processes and their cultures.

And in looking at this year’s merger deals, what we're actually seeing are acquisitions disguised as mergers. If we're really honest, we have to admit that there’s no “M” in the M&A activity now; it’s all “A”!

It's surprising that so many companies still spend billions on legal due diligence, financial due diligence and ultimately the purchase price, and too often leave the most important asset in the deal — the people — to chance. I assume, hoping they'll just come together as a cohesive organization on their own.

Very few organizations are doing the cultural due diligence they should be.

In a true merger, no one culture should win

Having one side win over the other can be the kiss of death for the deal.

Unfortunately, in many mergers and acquisitions, there's typically an acquirer and an acquiree; and the lead company’s culture typically dominates, leaving the acquired company feeling like the "red-headed stepchild" or even worse… the LOSER.

What we really should be doing is paying attention to and respecting the “merged” employees, allowing them to understand what the two companies have to offer in the way of structure, processes and business behavior.

One simple way to accomplish this goal is to ask people how and why they do the things they do in their organization. This process affords people a sense of pride for their contributions and a feeling that they are valued in the deal.

The importance of cultural due diligence

Cultural due diligence is the process of investigating, assessing and defining the cultures of two or more distinct business units. It consists of a cultural assessment to discover areas of similarity and difference that will impact integration efforts and the achievement of strategic objectives.

It should be combined with regular due diligence processes in any merger and acquisition.

With mobile technology today, you can and should conduct a cultural assessment in the first 90 days of the deal.

Here's a sample timeframe:

infographic winners and losers in mergers

You should then use the results as a foundational tool for creating integration plans and a baseline for measuring organizational progress in the integration effort over time.

This encourages engagement and ensures the new merged organization is aligned and on-track with achieving strategic, human system integration objectives.

Cultural due diligence can’t fix an organization that is pursuing the wrong strategy.

What it can do is cut down on informal practices, internal politics, lack of trust, resentment and just plain bad management that might sink the right strategy.

Hints for a successful merger

If you're undergoing an integration effort, here are some helpful hints to keep in mind and improve your chances of success:

  1. Involve your HR/OD department or an external consultant with an HR/OD background in the integration process from the beginning.
  2. Use an appreciative inquiry approach when examining the culture of business units. Focus on finding the best practices that support the achievement of objectives rather than emphasizing areas of weakness.
  3. Use a validated assessment tool that collects both quantitative and qualitative data.
  4. Include culture as part of your due diligence process and be prepared to address the incongruences between business units with action.
  5. Communicate, communicate, communicate! Keep employees in the loop about the progress of the integration effort.
  6. Involve employees in the integration effort.
  7. Allocate dedicated time and resources for the project.
  8. Measure and report on project progress regularly.
  9. Communicate results and progress and seek input on areas of improvement… also known as sharing and celebrating successes!

Your turn: What experiences have you had with successful and not so successful mergers from a cultural perspective? Do you have any tips or recommendations to share?

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