This article summarizes the research that shows culture to be a major cause of failed mergers, acquisitions and (M&As). But it doesn’t need to be. This article provides five key steps that HR leaders should follow: Run a cultural assessment pre-deal, 2. Define a clear culture strategy, 3. Incorporate people-centred practices for change. Build emotional intelligence within teams and measure culture success by observing concrete behaviors and outcomes.
Mergers & acquisitions (M&As), are the fastest way for an organization to grow, enter new markets, or in some cases even survive. Around 36,000 M&A transactions worth $2.6 trillion were concluded in 2024.
M&As are difficult to get right. ‘s analysis of 40,000 acquisitions in the world over the last 40 years found that 70-75% failed to meet their stated objectives. Why? According to Deloitte cultural differences are responsible for 30% of integration failures.
Ernst & Young’s 2024 People in Transformation report states that leaders can no longer underestimate the impact organisational culture has on transaction performance.
McKinsey’s research shows that companies who manage culture in their integration plans are 50% more likely than others to achieve or surpass their synergy goals, both for cost and revenue.
The Board must take cultural integration very seriously, given the importance of organisational culture in M&A.
Why is it important to focus on the company culture when pursuing M&A?
Even though changing the culture of an organization can be difficult, M&As add a new layer of complexity. Acculturation is a process that occurs in addition to the usual heightened emotions associated with any change.
The dynamic of acculturation occurs when two cultures come into contact . They have different communication styles, everyday routines, and ways of working. In this situation, people try to adapt to new dominant influencers without compromising their identity.
Acculturation is a positive experience when it’s done with emotional intelligence and in a deliberate manner. If not, it can lead to frustration, stress, and inefficiency, as well as problems that remain unresolved for years until a crisis forces them onto the Board’s agenda.
Five steps to M&A Success
The board must take the integration of cultural values seriously, given the importance of organisational culture in M&A. Here are 5 practical steps you can use to implement in your M&A plan.
| Step 2 | Run a cultural assessment pre-deal |
| Step 2. | A culture strategy should be agreed upon |
| Step 4 | Adopting people-centred changes practices |
| Step 4 | Everyone can develop emotional intelligence |
| Step 5 | Measure success |
Step 1: Run a cultural assessment pre-deal
If two organisations share the same set of values, it’s reasonable to assume their operating cultures are similar. You may also assume that if two organisations are both building societies, retailers or charities they have similar priorities. It is rare that this happens and it can be a surprise when people begin working together after the deal.
While there is a limit on how much time you can spend in each organisation, it’s important to conduct a cultural assessment to gain valuable insight as to where the true similarities are. It will also flag up likely conflict points.
- Assess the level of understanding and integration of each organisation’s values if any.
- Interview those involved in pre-deal activities in order to better understand the culture. Ask: How do decisions get made? What is the style of communication? What is valued and rewarded in the workplace? What is the dominant leadership style?
- You can use existing data about customers to evaluate the impact on culture of an organisation, such as Trust Pilot reviews and NPS scores.
Step 2: Agree to a culture strategy
The Board, with a good understanding of the existing cultures must come up with a strategy that is unified and centered around culture to create value after integration. There are essentially 3 options .
- Both cultures should be preserved as is.
- Absorbing one into another.
- Develop a new culture by combining both cultures.
Preserve the culture of a small, agile and creative company if you are a large bureaucratic organization buying it.
There are different strategies for different functions . In the HP-Compaq merge, for example, the new company retained HP’s Printer Division, with little change, but adopted Compaq’s culture and integrated its sales force.
should only focus on cultural issues that matter to the organization. Avoid inadvertent power plays by being open and honest with culture change strategies. This is especially true for leaders who might assume their heritage culture to be ‘top dog.’
Use meaningful language to connect people with the culture you want.
Step 3: Adopt a people-centred approach to change
Pecan’s people engaged change is an example of a framework that helps people successfully navigate their culture change journeys.
It’s not all about “comms”! Include culture as a separate workstream within the integration program. This should be sponsored by a senior executive (not necessarily HR). As with any other workstream, make sure to scope out the necessary resources and interventions.
Raising everyone’s consciousness of the current culture is key to a successful culture change. Connect people with the desired culture using terms that they can relate to, with interventions in all roles, to shift mindsets, behaviours and develop new skills.
Keep in mind that impacts the workstreams, including the operating model and decision-making responsibilities. Nominate someone who can be an intuitive collaborator and influencer to lead this effort.
Leaders increasingly recognize that culture is ‘the hard stuff’ which has a direct effect on the bottom-line.
Step 4: Develop emotional intelligence in everyone
Acculturation, as we have already mentioned, can be a rough ride. Some of the unhelpful behaviors that can emerge during M&As are:
- Stereotyping: “They’re all X”.
- Think of the difference between an in-group and out-group.
- Survival is the act of doing everything possible to protect your job and reputation.
Human nature is at play when we feel threatened or intimidated by another group. Invite colleagues to discuss these dynamics and raise awareness. They can also learn how to navigate through them. This can be an incredibly fun and healthy method of building new relationships.
Step 5: Measuring success
Culture was once seen as a’soft’ thing. leaders now recognise that culture has a direct effect on the bottom-line and in this case M&A success.
When defining future culture, try to be as specific as you can about the behaviors that will assist in achieving your integration goals. You can, for example:
- You could use the phrase ‘promote the products of each company’ instead of the word “collaboration”.
- You could use this phrase instead of the word “honesty”: “Speak up if you have an idea that will improve efficiency”.
It is much easier to to identify concrete measures that will add value to an organisation, and to get the support of leadership. The impact of the new culture on employees, customers, and commercials is also clear as it begins to take hold within the newly merged organisation.
