This paper is part of a series about advanced M&A cultural practices. The intent of the series is to share the current state of leading practices in cultural work, specifically and only for the M&A situation.
It is based on the findings from a unique and highly experienced group of M&A practitioners who meet regularly with WTW to share their views on this area. Each firm’s participants are drawn from its in-house M&A functions, 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 and 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. This means that the focus of the paper is on:
This paper does not address why they should do the work in the first place, which is the subject of a separate article in the series.
The reason for this approach is that these firms concluded many years ago that cultural problems are a major factor contributing to deal failures. While they had seen all the publicly available research on how cultural problems led to deal failure, it was their own specific reviews of the success or otherwise of their own deals, led by their corporate development function, that gave them the reason to improve their overall approach to culture, both in the acquisition phase, when they are spending capital, and in the integration phases and beyond, when the return on the capital invested is expected to materialize.
As a result, the group of M&A practitioners developed their approach to address culture in a structured way, similar to how their firms approached any business problem (i.e., being clear on the root causes and problems, and the goals and risks or costs and benefits of any analysis, explained in terms a business leader could understand).
This paper shows how they first brought that structure and discipline to cultural discussions by capturing in one place the parts of culture that have the greatest impact on a transaction. This was accomplished by creating a cultural framework built for M&A purposes, to facilitate the structured and organized discussions in this area. This framework formed the platform for ongoing cultural investigations because it more precisely maps culture’s impact on deal outcomes, goals and risks.
The discussion is centered on bigger firms buying smaller firms with an emphasis on “talent-based deals,” meaning deals where the people at a target are deemed the most important asset among all the other assets at a target. For most buyers, the deal strategy centers on acquiring to expand their capabilities (also known as “scope deals” in M&A circles).
We did not consider any transaction that transformed a company to such an extent that creating a “new” culture, or third culture, was required. While these transactions do happen, they are a very small percentage of actual deals. Likewise, large industrial deals, and mega-mergers, while discussed within the group, are not the focus of this paper. The consensus was that the size, scale and global scope of those deals made it difficult to incorporate the approaches discussed here. There were also many other “assets” in the combining firms, well beyond talent and employees.
Finally, the issue of growth or erosion of shareholder value as a specific goal, as seen through buyer stock price changes, is not typically a goal of talent-based deals and was not a factor in our analysis. In contrast, larger deals lend themselves better to share price comparisons with peer companies, as this data is publicly available and can then be analyzed by consulting firms and academics alike.
However, the general principles reviewed here can be adjusted and applied in varying “doses” to most deals.
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