How to Approach Culture in M&A
This article summary is based on the findings from the Willis Towers Watson M&A Culture Group, a unique group of M&A practitioners that meet on a regular basis to share and discuss leading practices in cultural work in M&A. Each firm’s participants are drawn from its in-house M&A functions, representing corporate development, business development or corporate strategy and its human resources M&A group. The content reflects the discussions within the group and not the sole practices of any one firm.
Advanced acquirers have long known that cultural problems can be a major contributing factor to deal failures. For the firms that make up Willis Towers Watson’s M&A Culture Group, this has been borne out not just by publicly available research, but also on examination of the success or otherwise of their own deals, led by their corporate development function, both of the acquisition phase (when they are spending capital) and in the integration phases and beyond (when the return on the capital invested is expected to materialize).
As a result, this group of M&A practitioners developed approaches to address culture in a structured way, by creating a culture framework built for M&A purposes, to facilitate the structured and organized discussions taking place in this area. As one participant commented, “Culture is a business imperative for us; it is not investigating culture for culture’s sake.”
Just deﬁning culture is one of the most diﬃcult parts of the M&A process to address because there are so many deﬁnitions out there. Furthermore, not all components of organizational culture are equally important or will have a major impact on the performance of the organization during the critical acquisition and integration phases. The challenge is to distinguish the truly important from the elements of lesser importance based on the type of deal and the phase within the deal life cycle.
That’s where the framework comes in: The first step is to define the scope of the M&A cultural investigations using a framework to initiate the conversation. The framework helps leaders understand the cultural concepts and elements, and their importance to the transaction’s success in a simple yet comprehensive and visual way.
However, it needs to be balanced with a heavy M&A educational element to help remove the risk of generalizations. This keeps the conversation focused on solving problems and issues in the business situation at hand: the deal itself.
This framework was used by the group to house these concepts and illustrate the issues and questions leaders need to think about, but also so the group itself could dig into deeper conversations without getting stuck on each firm’s way of describing culture.
It has seven key components:
- Business drivers and basic facts
- Leadership and talent
- Leadership compensation and performance
- Organizational design and operating model
- Non-negotiables (this term is unique to M&A and covers what areas must change to become part of the buyer)
- Inclusion and diversity
- Post-close working relationship
You can download the culture framework here.
It’s important to note that this is an “aggregated” model, and each firm has its own variation suited for its own company-specific purposes, which is adapted from how each firm currently describes its culture.
The Practical Application of the M&A Culture Framework
The cultural analysis begins for these firms as early as possible, with the framework being used to capture the relevant information in one place. Once the basic information is gathered, however incomplete — and it will be incomplete — the first pass in discussing the results forces leaders to be specific about the parts they deem important.
The output helps determine exactly how the integration will be approached as well as the funding and resources needed to raise the probability of success: Any analysis can only increase the probability of success but cannot guarantee it. So begins the “ruthless prioritization” process, based on having better information at hand early enough to make better decisions.
The data summarized by the framework responses inform leaders, direct thinking in these situations and move off the common problem of decisions in the cultural space being made by anecdotes from their own beliefs or buildup in the course of target interactions. It is not that these stories and opinions are not important — they are — but now they can be tested against the facts gathered.
While we know that experienced acquirers evaluate culture already, we also know that there is no “silver bullet,” no “one way” or the “best way.” Each firm does it differently, but they all share one principle in common: They all have an organized and disciplined approach. The important point is to have a framework in place, prepared and ready for use, and for it to contain the elements that support and most impact deal goals and risks.
Done well, this work can have a massive impact on the success of the deal.
To read the full article, visit The M&A cultural practices of advanced acquirers.
About the authors
Jim McKay, Managing Director, North American M&A Human Capital and Benefits Leader, Willis Towers Watson
John Bremen, Chief Innovation and Acceleration Officer, Willis Towers Watson
Craig Keller, Senior Director, M&A Consulting and Global Co-Head of Change Management, Willis Towers Watson
For further reading on Culture in M&A, check out the rest of the series:
Building the business case for culture in M&A: How advanced M&A practitioners create the business rationale for incorporating culture as part of their M&A process.
How to present the results of M&A cultural assessments to stakeholders: Advanced acquirers embed culture work in the M&A process and customize their approach for each deal and their findings for each stakeholder group.
How M&A cultural assessments are used to realize deal value goals: Cultural investigations focus on the value issues and the relevant changes needed to realize that value and the people who drive it.