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Building the business case for culture in M&A

Findings from the WTW M&A Culture Group

By Jim McKay | October 28, 2022

This paper focuses on how advanced M&A practitioners created the business rationale for incorporating culture as part of their M&A process.
Mergers and Acquisitions

This paper is the second in a series about advanced M&A cultural practices. The series shares the current state of leading practices in cultural work, specifically and only for the M&A situation.

The series is based on the findings from a unique and highly experienced group of M&A practitioners that meets regularly with WTW to discuss their views in this area. Participants are drawn from their company’s in-house M&A function, representing corporate development, business development or corporate strategy (the term varies based on each firm’s internal definition of the role), and its Human Resources M&A group. Throughout the series, the content reflects the discussions within the group, not the sole practices of any one firm.

The distinguishing feature about the group that will also help readers understand the content better is that cultural investigations are an accepted part of their M&A process.

Our first paper in the “M&A cultural practices of advanced acquirers” series shows how M&A practitioners bring structure and discipline to cultural discussions by capturing in one place the parts of culture that have the greatest impact on a transaction. This paper focuses on how they created the business rationale for incorporating culture as part of their M&A process.

Each firm has different ways of describing the work they do in “culture” and so the terms “cultural work,” “assessments,” “investigations” and “organizational assessments” (the term several use for their cultural work) are used interchangeably. The important point is that each firm has an organized and disciplined approach to the work and a clear rationale for what they do and why they do it.

As in any approach to complex problems, the first step is to understand the specifics of the business situation. For M&A deals this means understanding how a transaction is put together from beginning to end, and what happens and what is important throughout this journey. To achieve this means understanding the deal life cycle, the phases within this cycle and the goals within each phase before determining where “culture” fits.

Commentary on studies on culture in M&A

The group also reviewed the vast amount of external research in this area to consider what could be learned from what others outside the group were doing. The comments are an overview of the group’s discussions about research and do not pertain to any specific research paper or article.

Generally, the research confirms that, by any measure, M&A is a complex, high-risk venture. Between 50% and 70% of deals fail to meet their intended goals. This statistic needs explanation. It relates to whether the deals reached or exceeded the goals on which the decision to invest was made. But it does not mean these are necessarily bad or poorly performing deals. They may well be profitable, but they have not reached the profit and performance measures on which the deal investment was based. Or for a deal built upon multiple goals, only some were fully met.

The research shows that cultural issues are consistently a key source of deal failure. Generally, though, studies do not have a consistent definition of "cultural issues."

Culture definitions are based on an author’s definition, not defined at all or often applied with the benefit of hindsight to a deal already classified as a “failure.” Therefore, there is no certainty in reviewing the studies that respondents were thinking about the same issues and terms when sharing their input on the role of culture in deal failures. But this is not an uncommon finding; when respondents are asked to define culture, answers can vary, even for respondents within the same organization.

But no matter what the definition, culture is clearly one of the most complex areas for organizations to address. This is partly because organizations find it hard to express the compelling business reasons to conduct cultural work in M&A in the first place and partly because they don’t have the knowledge, skills or experience to do anything meaningful about it.

Download the paper to learn more about this topic. Our M&A experts explore:

  1. The deal life cycle and typical goals
  2. How acquirers built their business case and the ROI question
  3. Eight steps to build the business case
  4. Who uses the output of this work

Managing Director, Global M&A Client Experience Leader
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