Your deal is done. The champagne is popped, virtual high-fives exchanged. But the celebration soon gives way to something unexpected and unaddressed until now. A big chunk of the newly-combined company is speaking in a tongue only they understand and can’t communicate with your team. Blank stares abound, and the failure to consider culture much earlier in the deal has everyone asking “What have we gotten ourselves into, and what do we do now?”
As the pandemic pulled many of us out of our offices and into our homes, more business leaders have started to realize what experienced dealmakers have known for a long time: Culture is a critical part of recognizing value in M&A, and it’s much more than a matter of a flexible dress codes, free snacks and ping-pong tables in the break room. It includes the shared values and behaviors — including environmental, social and governance (ESG) opportunities — that shape employee experience, interaction and morale within an organization. These behaviors characterize how a company gets things done.
In working with clients after an acquisition, we often find that culture gets too little attention. In fact, in our 2020 M&A integration survey, only half of the executives we polled said culture was an element of their change management programs. When companies come together without proper planning, cultures can clash. And the consequences of insufficient investment are significant: Leaders struggle to communicate effectively, talent sits in the dark, meetings are ineffective and misalignment permeates the organization.
Consider one acquisition by a large technology firm. At the time, company leaders didn’t believe culture assessment and integration planning were worth the effort. As a result, they didn’t understand that leaders at the acquired company made decisions more autonomously than at their new parent company. When the acquired chief IT officer announced a new organizational structure without consulting executive leadership or the integration team, integration and business work came to a halt as leaders became consumed with employee questions across both companies.
Savvy C-suite executives and business unit leaders now insist on figuring out the culture equation. That means investing in resources to effectively uncover cultural differences before a deal happens, as well as enlisting leaders in understanding, problem solving and driving their teams to take action.
It starts with targeted understanding and assessment. Culture is hard to define, and while your company’s leaders may communicate a defined set of core values and purpose, actual day-to-day organizational traits and behaviors may be quite different. The company should invest in an effective way of uncovering its actual culture and setting a baseline that serves as a starting point to plan for a successful integration. It’s important to get a clear and accurate picture, as employees and leaders may have very different perspectives on your culture. For example, in our 2018 global culture survey, 63% of C-suite and board members said what they say about culture is consistent with how people act, but only 41% of employees agreed.
Organizational culture doesn’t change easily or fast. In the context of M&A, culture integration is not necessarily about defining a net new culture or rapid culture transformation. It’s about honestly assessing culture at both the acquiring company and the target and defining what we plan to do in the near term. This helps ensure we’re creating the right action plans and interventions to avoid deal deterioration in the early days of two companies working together.
Partner, PwC US
US and Global M&A Integration Leader, PwC US