Moments that matter in a deal: bridging the culture gap in tech acquisitions
July 19, 2019
In recent years we’ve seen a spate of large businesses snapping up smaller, innovative tech companies, often young start-ups. If you haven’t developed it yourself, the easiest option (on paper at least) is to buy it. The logic behind a deal like this is very clear, but what about the practicalities? Typically, these acquisitions see an agile, young and innovative company – let’s call it Bright Tech – paired up with a sizeable, well-established organisation with decades of history behind it, which we’ll call Big Co. A merger brings Big Co technological innovation; Bright Tech gets a sizeable capital injection and investment to grow. So far, so logical. But how well do the companies really understand each other, and how they can work together in the future. The chances are that if you were to sit down and have a heart-to-heart with the employees of Bright Tech, working for Big Co wouldn’t exactly be on their bucket list. Bright Tech’s has an entrepreneurial start-up culture, they fail fast and are encouraged to think differently and disrupt; they’re also remunerated and rewarded differently too. At Big Co, on the other hand, there are more processes and checks in place due to its size; it’s also sometimes harder to be heard. The size of the workforce necessitates strict security and rules to be put in place too.
As our survey with Mergermarket, Creating value beyond the deal, revealed, culture can make or break a deal. Combining two businesses like Bright Tech and Big Co is about as challenging as it gets. There are many risks involved, particularly for the acquirer, such as the risk of quickly losing people you’d rather keep. Management intent and worker intent can be very different. Bright Tech employees might see the sale of their company as success for that stage of their career and quickly move on. With their skills, they will have lots of options.
The real question is, how far can you successfully reach between two culturally diverse organisations? The answer is, surprisingly far - over time, two very different businesses can move closer to each other and find a new normal. But that takes work, and much of that work should happen before the deal is even completed. So here’s what helps:
Be clear about what the culture of the integrated business will look like. Is the plan to move the culture of one closer to the other? Or to meet in the middle? Or to keep the two entities’ identities distinct and separate? Being clear about the strategy enables you to facilitate it in the best way possible.
Know what you’re dealing with. Assessing the culture of both parties to a deal is an imperative if the value of the deal is to be maximised. It’s all about the people. If you know what’s important to employees, you can work to meet their expectations from day one.
Think about the working environment. Physical surroundings matter, and so too does the equipment that we use. Bright Tech’s workers may be used to the latest workplace innovations – presenting them with a standard phone and laptop sends a message that they’re expected to conform. Never underestimate the physical environment around employees and its impact on them as a workforce.
Find common ground. However different the cultures of each organisation are, there will be common ground that you can build on. If customer centricity is important to both businesses, for example, that’s a great place to start and you should use it as much as possible. We also work with clients to identify ‘link’ people, who can help bridge the gap between the two organisations.
Consider small steps. Some cultural gaps are too wide to leap in one go. An intermediary deal, which brings the working arrangements of the two organisations closer without fully integrating them, might be the more sensible first step – this could involve working as a partnership initially, or negotiating a reselling agreement that could be reversed if necessary.
Very few culture gaps are insurmountable but no-one should ever assume that time will solve the problem. Integrating very different cultures takes hard work, intelligent research and above all, planning from the earliest stages of a deal.
Read our Creating value beyond the deal report for more insight into the impact of culture on dealmaking and its value.