It seems obvious that the best time to find out about possible culture differences between two companies considering a merger is before the deal is complete. One of the most common reasons for mergers or acquisitions to fail is concern about cultural integration. It has become a high priority for companies considering these transactions to conduct a cultural evaluation.
A cultural evaluation conducted by a professional adviser analyzes subtle qualitative factors that go into a merger or acquisition. This is different than other facets of due diligence, which focus heavily on quantitative factors such as assets and liabilities. A cultural evaluation can include an assessment of the values, management style, work environment, and founding philosophies of each company.
No integration between two different companies will be completely seamless, but by determining areas of compatibility and synergy, significant obstacles can be identified early on. Usually with these professional evaluations, employees, customers and shareholders of each organization are examined to find areas of common ground and potential conflict. It can then be determined if these conflict areas outweigh the potential benefits of a merger.
Steps at Each Stage of the Deal
There are three basic factors examined during all stages of a cultural evaluation during the merger and acquisitions process:
Pre-Merger Stage. In this stage of a cultural evaluation, leadership and middle management styles are identified, as well as each company’s core values and work environment. Early discussions are guided by an intercultural assessment to determine a cultural framework.
Active Merger Stage. During this stage, the evaluation monitors the progress of discussions, while always keeping the framework of the initial assessment in mind. There will be a consultative analysis of any potential conflicts in management styles that may be seen during the observations of the two companies.
Planning for the Post-Merger Stage. This stage is very important in the process. Sometimes companies can fail to fully grasp how difficult cultural integration can be. This can lead to the deal being finalized without realizing that there were wide cultural gaps that couldn’t be bridged. Incompatible companies wasted valuable resources attempting to fix something that was basically unfixable. Proper planning, however, with a thorough cultural evaluation, leads companies to create unions that are more compatible.
Cross Border M&A: Bridging the International Divide
International M&A transactions are extremely complex unions, and cultural evaluations have taken on a whole new meaning. Cross-cultural factors need to be carefully examined prior to a transaction. Cultural differences, and their potential benefits versus risks, need to be assessed and evaluated for each organization.
Often in these situations, there needs to be specialized knowledge with regard to the sensitive areas for each organization. The evaluation can provide a detailed analysis of potential cross-cultural obstacles in the negotiation process and after the integration, letting each company forge understanding with each other.
An Ounce of Prevention Versus a Pound of Cure
It used to be a common belief that the financial side of a pre-merger or acquisition was more important than any other part of the process. Nowadays, however, companies see the importance of focusing on the whole picture, and having an integrated plan in which all of the cultural pieces eventually fit together. With this type of planning, companies can be more confident that the transition will be a smooth one down the road.To learn more about a cultural evaluation, speak with Filler & Associates.