Recent discussions on M&A deal activity debate whether mergers and acquisitions fail to meet financial projections or return on shareholder value. Most often, failures are chalked up to ‘cultural clashes’, implying that the two merging entities ‘just don’t fit’. Given the abundance of resources that get allocated towards the execution of a merger or acquisition, one would think that significant resources would be allocated to integration. In practice, this is far from the case. The merger of cultures seems to be an issue that rarely gets enough attention by deal participants in the lead-up to a merger or post-closing.
In a 2010 survey conducted by Pritchett LP, directors and officers overwhelmingly agreed that corporate culture plays a significant role in M&A success and failure. Similarly, in a 2010 survey conducted by McKinsey & Company, 50% of those surveyed said that they believed that cultural fit lay at the heart of a value-enhancing merger. Given that the culture clash issue has received the attention of directors and executives, it is puzzling to discover that only 4% of executives reported that their organizations included culture-specific questions in their due diligence checklists and only 2% of respondents reported that they enlisted a third party to conduct a culture gap analysis. In addition, according to the survey, companies are even less likely to spend money on culture integration programs post-closing.
The situation has not changed dramatically over the last few years. In a Deloitte LLP study entitled Bridging the Gap: M&A. Are CFOs and boards aligned? directors and CFOs agreed that achieving a cultural fit presented the greatest cause for concern during integration, with approximately half of directors and CFOs citing it as their greatest concern. However, like most problems, success in managing integration issues depends on having a full-time, dedicated team. However, without adequate performance metrics, these jobs are often left to existing employees with other responsibilities who only dedicate a fraction of their time to these problems. The lack of attention to this area is particularly striking given that integration issues can lead to problems in customer retention and synergy capture.
The lack of resources allocated towards an issue that many regard as the biggest threat to achieving shareholder value is attributed to a lack of metrics to effectively study the problem and an uncertainty of how to use of the information, once it has been compiled. This suggests that a deeper comprehension of how integration and corporate culture impact value for shareholders would be of significant interest to M&A practitioners and industry.