Company culture is often an underestimated contributor to the success of mergers and acquisitions (M&As). It should be the number one consideration. Numbers can be improved, strategy can be adapted, but culture is the DNA: an integral part of a company that is often difficult—and time consuming—to change.
Culture is one of the main reasons that employees choose to stay at a company long term; it’s what makes them love their workplace or take pride in their work. If company culture is so integral, then why is it an uncommon discussion point in M&A negotiations? And why are so many mistakes made when bringing two cultures together?
One of the common mistakes made when examining a company’s culture and assessing its suitability for M&A is that often directors are looking for an exact match. Not only is this largely unachievable, but even if an identical match was found, it would not be beneficial for either party.
Differences, whether they are cultural or operational, can improve both companies. Diversity of thought and approach allows companies to evolve, grow and, ultimately, thrive.
Getting to know each other
It is essential that directors spend time getting to know the other company’s culture prior to even thinking about entering negotiations, along with sharing financial information and completing due diligence. This process should start months or even years before the word ‘merger’ is used.
Asking key questions about topics such as salary reviews, the cost of living crisis and employee benefits, in addition to values, attitudes and approach to problem solving, are essential to getting to know the other company as an employer. The answers will not only help parties to decide if the cultures are aligned enough for a successful merger or acquisition but will also allow a list of talking points to be created prior to negotiations. But this won’t work in isolation and should be tested by working through live opportunities or issues together.
When effectively utilised, negotiations are an opportunity to decide more than just the financial, legal and operational framework of the merged company. They also provide a chance to decide ‘tramlines’, or the operational tools that allow the companies to integrate easily. For example, this might be prioritising the relevant IT system across both companies to facilitate easier collaboration and consistency.
Of equal importance, but often overlooked, are the key values, attitudes and pillars that the companies will embody. These are the ‘golden threads’ that knit the two companies together and make up the invisible infrastructure of the group.
But it’s vital to look at how those values are bought into throughout the organisation and lived, rather than the fine words proudly displayed on reception walls.
Culture washing
Although having a shared identity is an inevitable outcome of a merger or acquisition, allowing this to be expressed in different ways between companies, regions, or even individual offices will increase the chances of it being successful.
‘Culture washing’, where a company forces its company culture on workers, plays against an employee’s psychology and can end up being counterproductive. It simply doesn’t work, and will create a combative rather than a collaborative atmosphere, with employees who are apathetic about or disengaged from the values and pillars of the company.
This is particularly important when the two companies are in different industries. For example, a marketing company may aim to be “disruptive”, in order to foster a culture of creativity and freedom. However, this terminology may not work for a law firm that prides itself on diligence. If the two were contemplating a merger or acquisition, it may make sense for the law firm to adopt the target of being “progressive” or “brave”, words that have a similar meaning to “disruptive” but are more appropriate for the law profession.
These aims are what give the companies a clear vision and understanding of the work they are striving to deliver, therefore it is crucial that they appeal to the current employees, but also to potential recruits. Insisting the two companies use exactly the same words will end up with a compromise that does not make sense for either, reducing them to meaningless words rather than valuable aims to be actioned in the workplace.
Culture washing is also particularly common when a larger company acquires a smaller one, and instead of coming together as equals, the smaller company is dominated and has a new culture enforced upon them. A workforce can easily grow resentful of changes that feel like they have been imposed ‘overnight’. Looking at people turnover in some of the legal market consolidators proves this point. Entering any kind of partnership is about give and take, and M&A is no different.
Just because a company is larger or more profitable does not mean it has nothing to learn; smaller companies often have an agility or simplicity that is lost in the bureaucracy of a larger company. It is important for merging companies to enter the partnership with an open mind and willingness to learn.
A time and a place
Regional idiosyncrasies should also be understood. For example, what makes a fantastic employer in London will not necessarily make a fantastic employer in Newcastle, as people in these areas have different concerns.
Regional managers will be aware of the specific needs of the people living and working in their area and should have the agency to address them without those actions having to be uniform across the entire company. This is the same, whatever the firm. Professional services is a wide category, with many different business models and external influences.
It can be difficult to implement new ideas, even when given the freedom to express them in different ways. It is vital that employees trust the senior leadership team and vice versa, and there is an active effort from all parties to strive for the agreed vision for the newly merged company. Trust takes time to build up naturally, however; clear and frequent communication and asking for feedback often and proactively are key.
At the beginning of a merger or acquisition, frequent communication will ensure that everybody is on the same page. Regular check-ins with department leads and managers are necessary for updates and provide the opportunity to recognise and rectify problems before they worsen.
As leaders, it is important to address concerns or issues at every level. This can be done through pulse surveys, which provide the widest range of opinions and feedback, and also show that employees are being actively listened to by the senior leadership team. Moreover, these surveys—especially if anonymous—will help keep management and leadership accountable.
This type of visibility and communication will create an open and transparent environment, and as a consequence, trust will build up naturally. However, there is no substitute for leaders engaging with people directly, little and often, through a variety of channels.
A company’s culture is its lifeblood and can make or break a merger or acquisition. Whilst culture can be expressed and delivered in different ways, it must have cohesive strands that run through every office to bring the benefits of diversity and freedom, while at the same time uniting the company in a distinct shared identity.
Think of it like sticks of rock from the same seaside—they may appear different from the outside, varying in pattern or size, but if you cut through any of them in any place you will see the same words running right through them.
Sarah Walker-Smith is CEO of legal and professional services group Ampa