Part I: The Business Case for Caring About Culture

Origami, Schwäne, Gegenüberstellung 2M&A MYTH: When a business owner / CEO sells a company they cease to be involved in the company. FACT: The majority of owners who sell do stay involved with the day-to-day operations of the business.

With this in mind, it’s important for both the CEO and the buyer to give forethought to how the organization will be co-captained after the deal closes.

What happens when cultures clash?

Consider this hypothetical example. A strategic acquirer approaches a small manufacturing company with an offer of a 10x multiple of revenue – essentially an offer the CEO can’t refuse. Even though the company has a proven winning culture that employees embrace, a 10x multiple of revenue does have a way of reprioritizing things, perhaps relegating the importance of a “culture fit” to a place of secondary importance.

In this example, the deal is executed so quickly that there is effectively no time for the leaders of the acquired 250-employee shop to synchronize a substantive cultural alignment plan with the new 125,000-employee mother ship. After the sale, a major cultural difference is discovered when two very different business development philosophies are revealed. The smaller company had been following an aggressive outbound call strategy, while the mother ship prefers a consultative sales approach.

The net result of placing aggressive, transaction-oriented, high-energy, inside sales professionals, who make 120+ cold calls per day into an environment with a protective consultative sales team which answers phones to take orders, could be equivalent to locking vicious dogs in a small hot cage. In this case, the owner operators end up in the middle of two competing packs and everyone involved discovers the importance of planning around cultural fusion.

Tip: Read this earlier post, 9 Critical Culture Questions to Ask When Selling a Company, to help vet potential buyers.

Why you should try to get close to the mark (hint: there is no bullseye)

Finding an acquirer with a similar business culture should be a top priority for sellers. Blending business philosophies, paradigms and practices can be difficult, which makes conscious attention to pairing with like-minded partners all the more critical. When the cultures of the two organizations are closely matched, or there is a robust influence strategy in place for melding key elements, it can help minimize undue stress and accelerate a unified path of growth.

While it’s desirable to find the closest cultural fit possible in a transaction, keep in mind that like any marriage there is no “perfect fit,” especially when buyer and seller are going to share operational leadership in a post-deal environment.

Both sides need to be capable of making a significant investment of time to leverage the collective intellect of all parties and exhibit a mutual dedication to forecasting the myriad of potential pitfalls that await them. From a healthy list of likely challenges, resolutions can be reverse-engineered or processes constructed to preemptively navigate friction points.  The bottom line is culture counts, and it’s worth the rigor on the front end to preserve it!

Culture clashes can disrupt businesses on many levels

In most cases, business owners maintain a financial, intellectual and emotional stake in the business after the sale. Most often there is a clear mutuality of interests between the buyer and seller (now partners) as the transaction is an investment in the future and therefore of central importance to employees, customers and vendors.

Any drastic changes to the culture post sale could be disruptive to the acquired business, and:

  • Result in employee discontent and/or departures (voluntarily or through termination), which could slow productivity.
  • Alienate customers who are uncomfortable with changes to business processes or upset because their contact at the company has changed.
  • Threaten valued vendor relationships due to different bidding procedures and pricing policies or because the acquirer has given preferred vendor status to someone else.

If you are contemplating selling a company, finding a buyer who offers a symbiotic culture match is critical. Take time to carefully research any buyers who are interested in acquiring your company. A third party, such as an investment banker, can do a lot of the legwork for you, helping to narrow down your options, while keeping your goals, including culture compatibility, top of mind.

In Part II of this two-part series on merging corporate cultures, we offer a five-point strategy you can use to build a performance culture after the deal is complete.

 

 

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