The Cultural Iceberg: Why M&A Deal Makers Should Value People Over Spreadsheets

I recently attended a 3 day M&A workshop in San Francisco hosted by the M&A Leadership Council. Also in attendance were the M&A post-merger integration professionals from thirty or so other companies, most of them serial acquirers, such as Intel, Symantec, McAffee, EMC, Halliburton and Best Buy. One central theme that emerged during this workshop was the common disconnect between the M&A deal team, who conduct the due diligence, and the M&A integration team, who try and make the investment meet the assumptions that led to the deal in the first place. Most of the time these deals don’t meet those assumptions. Why? Well, it’s simple. The deal team often spends a lot of time reviewing an organization from a financial perspective.

To them it looks like this:

However, what they are actually buying are people – assets who are free to leave the organization at any time! That organizational model looks more like this: Workplace culture is an invaluable component to any organization, but not always reflected in the due diligence process. And this is where acquirers often hit some rough waters. During the workshop, there were some great anecdotes shared about this post-closing integration challenge. Acquirers would go into the target organization and integrate them by eliminating treasured norms and values that made them so successful in the first place.

One software company had “monthly movie night,” where they rented a theatre and provided the concessions for the entire company and their families. This had been an ongoing tradition for many years and was hugely popular. The first thing the acquirer did was cancel movie night to improve their net income. Employees were outraged! They started losing people (assets) soon after that, which far outweighed the cost savings for cancelling the event. Another example was shared about a railroad deal, where the target company had implemented creative names for each of their train routes, such a Blue Streak and Red Rocket. The acquirer did away with this tradition, replacing all the route names with their own alphanumeric system. They were never forgiven!

Another point raised during the workshop was the attitude of the acquirer. This is often comparable to that of a conquering army, with the belief that the target company should play by their own norms and values. All of the attendees conceded that this strategy is a repeated mistake. The integration teams in attendance expressed how they would love to be able to flag cultural issues or considerations during the due diligence phase, so they could plan better. If cancelling movie night is part of the financial synergies, they could be quick to squash the idea!

The consensus of the workshop was that the true assets of a business are not the cash it generates, but the people who make this happen. Greater attention needs to be given toward who the key people are (not just the executives) and why they like working there. Ensure you foster what is important to them. I have been through three acquisitions in the last 20+ years, and no attention was paid to culture and figuring out who were the most productive members of the organization. Each time, the most valuable people were all gone inside of a year!

Like this article? Then subscribe to Firmex and get the latest industry insights delivered straight to your inbox.


Brought to you by Team Firmex.