Culture: The Hidden Factor in Successful M&As

Corporations continue to merge, divide, spin and acquire at record pace: 2016 saw more M&A deals globally than at any previous time since the 1980’s, just eclipsing the pre-financial crisis record high in 2007.

There have been recent headline-grabbing failures, but deals that don’t make it to the altar are exceptions. Most transactions are approved by shareholders and regulators. However, an approved transaction isn’t necessarily a successful one. In his 2016 letter to Berkshire Hathaway shareholders, Warren Buffett wrote “As is the case in marriage, business acquisitions often deliver surprises after the “I do’s.” How true. According to KPMG, 4 out of 5 M&A deals fail to deliver promised shareholder value.

Why do these deals fall short? In a word, culture. Executives surveyed by Aon cited cultural issues as the leading reason M&A deals fail, second only to integration delays, and well above paying too high a price and overlooking risks during due diligence. When McKinsey surveyed active M&A business executives, 9 in 10 said past transactions in their company would have “substantially benefited from greater cultural understanding prior to the merger.” In other words, the biggest challenge an M&A transaction faces isn’t getting approved, it’s integrating cultures after the deal closes.

To help clients get the value they expect from M&A, Daggerwing Group–Omnicom’s management consultancy–launched a culture-first integrated financial transaction offering: Daggerwing TransACT. From vetting targets through integration, we help clients focus on behavioral norms and ways of working that are critical to success. Our experience points to three things companies can do to ensure their transaction delivers promised value:

1. Make sure it’s a good fit from the start. Successful companies use the due diligence phase to assess the cultures of M&A targets as well as their own, test their assumptions about culture, map the risks cultural issues pose to integration and determine if these can be effectively mitigated.

2. Be purposeful about the culture you want post-integration. Whether there is thoughtful design behind it or not, the combined company’s culture will happen. The trick is ensuring it’s the culture you want. Successful companies carefully design and articulate the values and behaviors the new organization needs to achieve all of the benefits promised to shareholders. These companies make a point of ensuring employees have a common understanding of what success is for the new company and are aligned around the ways of working needed to get there. The sooner this alignment happens, the sooner the transaction starts paying off. But culture cannot be handed down from the top. The most effective cultures are co-created with leaders and employees, which means integration planning needs to start well before Day One.

3. Double-down on employee inspiration. Transactions breed employee uncertainty at the precise time when the business needs to maintain or improve performance, but the bulk of communication efforts are often spent on selling the merits of the deal to external stakeholders. For deals to succeed, companies should spend as much or more energy communicating to employees about the promise of the new organization.

M&A activity will likely continue at its record pace. What can’t continue is the rate at which these transactions fail to deliver on their promise. Our TransACT integrated financial transaction offering is designed to close the gap. By including a focus on culture from beginning to end, we help clients ensure their transaction doesn’t just get approved; we help them ensure it succeeds.

For more information about Daggerwing TransACT, connect@daggerwinggroup.com, or view the press release on the offering here.

About Michelle Mahony and Marc Drechsler

Marc Drechsler leads Ketchum’s global financial communications efforts, advising clients on a range of complex issues. Michelle Mahoney is a Senior Principal at Daggerwing Group.