Due diligence for mergers and acquisitions has historically focused on investigating the selling company’s operations and financials. But none of that matters if the two organizations involved in the deal have opposing company cultures. Culture is often overlooked in M&A deals but it’s hugely important. In fact, over 30 percent of all mergers fail due to culture incompatibility, according to the Society of Human Resource Management (SHRM).
A company’s culture is based on the shared values, beliefs, and assumptions that influence behavior, expectations and attitudes. It’s what makes you speak with pride about the place you work and the people you work with.
Your culture has a significant effect on your company’s decision-making and leadership styles, its ability and willingness to change and adapt and its beliefs regarding what success looks like. It also sets the stage for how people work together. So, you can imagine the turmoil that could arise when two companies with vastly different cultures merge.
Think back to 2000, when media giants AOL and Time Warner combined in what is often referred to as the worst merger of all time. In a 2010 interview with The New York Times, former Time Warner president Richard D. Parsons said, “…it was beyond certainly my abilities to figure out how to blend the old media and the new media culture. They were like different species, and in fact, they were species that were inherently at war.”
Other factors – like the fact that the dot-com bubble burst just a few months after the deal was announced – also contributed to the merger’s ultimate failure, of course. But, had the business leaders and lawyers associated with the deal performed cultural due diligence, they likely would have noted the potential issues that could result from the clashing cultures.
For us at BIA, culture has always been very important and something on which we spend a good deal of time and effort. So when we recently acquired the eDiscovery and Computer Forensics Division of U.S. Legal Support, we were sure to make the company’s culture an important aspect of our due diligence efforts.
Based on our experience, here are three of the most important culture-related questions to consider during the M&A due diligence process:
Is the selling company’s culture intentional?
It’s important to dig deep and determine what lies below the surface of the company in question. To create an intentional culture, a company must first determine what’s truly important to them. From there, it is able to define its mission, vision and guiding principles, all of which make up the basis of a strong and authentic culture. Determining these things about the selling company from the get-go gives you a good idea of how well aligned you are with their beliefs. And if not, how open to change they may or may not be.
Does the selling company value the same things we do?
This doesn’t mean valuing things like growth and revenue. We all want that. This refers to how we go about doing the things that result in growth and revenue – the values inherent to the company. For example, it may be things like honesty, collaboration, continuous education and community involvement. At BIA, we’ve built and maintained a culture of knowledge and innovation. It’s a way of thinking, a way of ensuring that industry expertise permeates at all levels of everything we do, which in turn influences how we work and how we talk about what we do. So it was important to learn that U.S. Legal Support’s eDiscovery and Computer Forensics Division was also innovative, routinely evaluating and testing new technology and trying new things.
Does the selling company invest in its employees?
Company culture is about how an organization treats people – its employees, customers, shareholders and the public. A merger or acquisition could be set up for major failure if the selling company doesn’t recognize its employees as its most import asset but the buying one does. For one, it’s not going to be easy to teach those managers and executives the importance of investing in and caring about their team.
A cultural difference could cause extreme tension and fuel rapid turnover. Further, clashes between employees can severely decrease productivity and be a detriment to morale. In fact, 69 percent of employees say they would work harder if they were more appreciated. Save yourself from the potential downfall. Before entering into a merger or acquisition, spend time on the front end evaluating the selling company’s culture to determine how compatible it is with your own.
Brian Schrader, Esq. is CEO and co-founder of BIA (www.biaprotect.com), a leader in reliable, innovative and cost-effective eDiscovery services. With early career experience in information management, computer technology and the law, Brian co-founded BIA in 2002 and has since developed the firm’s reputation as an industry pioneer and a trusted partner for corporations and law firms around the world. He can be reached at email@example.com.