Culture will make or break a deal - so don’t leave it to chance

June 19, 2019

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by Ermelinda Beqiraj Partner

Email +44 (0)7872 005508

 

by Mark Anderson Partner

Email +44 (0)7770 921256

Planning for cultural change and integration is arguably the single most important element that defines an ultimately successful deal. Culture can make or break a deal - when we looked at acquisitions that had lost significant value relative to the purchase price (as part of our Creating Value Beyond the Deal report), every company affected said that cultural issues had hampered the realisation of value.

82% of companies that were unable to maximise value from a deal said they had lost more than 10% of their key employees following the transaction – that’s catastrophic at a time when more and more deals are focused on ‘people-centric’ intangibles. The survey showed that whether an organisation is acquiring or divesting, there is huge room for improvement around the management of talent; 92% of acquirers and 93% of divestors said they could have handled communication and culture management more effectively.

When’s the right time to tackle culture?

Culture should be at the heart of any deal, and that means that planning is fundamental. In practice, there will be a strategic plan in place and culture will inevitably be high on the list of priorities. But too often, companies wait until a deal is completed before tackling the nuts and bolts of cultural integration. That’s because their knowledge derives primarily from experience; they might have some idea of where the difficulties will lie before the deal is complete, but most of their learning is through day-to-day observation as the companies integrate over time.

In our Creating value beyond the deal report, we argue that ideally, organisations should have a comprehensive value creation plan in place at least 30 days before a deal is signed. But how can you plan when it comes to a concept that’s so difficult to define and pin down? That’s where Deals Intelligence comes in. Deals Intelligence applies an investigative skill set and open source intelligence tools to generate outside-in qualitative insights about the target, its customers and markets throughout the deals cycle.

People talk, and a lot of that talking takes place online, on social media, internet forums and blogs. Deals Intelligence uses tools that continually monitor social media and analyse huge volumes of publicly available, unstructured data, allowing us to build an accurate and comprehensive picture of the culture of both organisations involved, in very practical terms. For example: What is it like to work there? Who are the motivators within the workforce? How are leaders viewed? How do its people feel about its diversity policy? These questions can be asked, and answered, at each location of an organisation.

We used this technique recently to help a client who was considering an important acquisition. We conducted a review of the cultures of both the client and target company, using open sources and quantitative analysis of employees reviews, to highlight the similarities and differences between them, particularly any that might present risks to the deal. Our analysis revealed cultural differences resulting from entity size and sector, but also the ongoing efforts of both companies to transform their culture.

Integrating two entities’ culture is one of the most difficult elements of a deal but also one of the most essential. It’s too important to leave to chance. Our aim is to ask and answer the detailed questions: How, exactly, do the cultures of these organisations differ? What does this mean in practice? And what can we do about it? The more you know, the better your chances of a successful deal.

Read our Creating value beyond the deal report; the ability to bring cultures together stands out as one of the key factors in deciding whether or not you should do a deal. You can also read our latest blog 'Do you know who you are getting into business with?'.

 

by Ermelinda Beqiraj Partner

Email +44 (0)7872 005508

 

by Mark Anderson Partner

Email +44 (0)7770 921256