Tone At the Top: Intersection of Leadership & Culture in M&A

Listen to the discussion about this topic from the M&A Science Summit here.

70% of serial acquirers feel they do not do a good job of assessing leaders and culture - a staggering stat to say the least given that culture and poor leadership are often cited as the top two reasons deals fail to meet their thesis.

Consequently, it is quite obvious if practitioners (especially on the buy-side) do not fully investigate culture and leadership during a deal’s lifecycle, they cannot build a plan to address potential differences and problem areas, which will ultimately have a negative impact on business.

Why do these two areas often arise when talking about deal doom and gloom?

Well, culture and leadership are inherently linked since leaders influence their followers; what feeds both are leadership skills and training.

Today, we pull insights from expert serial acquirer practitioners, exploring how to proactively prepare for cultural and leadership differences, as well as how to leverage both during an acquisition. 

How to Effectively Investigate and Leverage Culture Leadership

The optimum point to begin looking at culture and leadership is as soon as you identify a potential target because the deal thesis drives what you need leaders to successfully execute; you are in a much better position as an acquirer if you can do this.

Some effective ways a buyer can learn about a company’s culture and leadership in order to build a hypothesis are:

1. Early on (pre-LOI), utilize the internet and social media to uncover critical information about leadership, such as leaders' backgrounds, their publications, their connections (if any) to one another. Once the deal closes, your hypothesis is either proven correct or incorrect; work to get information from employees, which will allow you to bring the cultures together and better leverage leadership.
2. Be sure to understand how the target fits into your overall vision - without this, gathering information is done in vain because there is not a focus on aligning work and building toward a powerful future. 
3. Perform a leadership assessment (of course, there can be some fear and bias surrounding this process, but it can help extract information, and as you build trust, individuals will tend to be more forthcoming); early on, it may be harder for the acquired company to access this type of information about the acquirer. 
4. During post-close integration, a leadership alignment session will help drive success and prepare you for the future. 
5. Also post-close, gather information from employees through interviews and conversations (only use surveys if you will actually utilize the results!), which will allow you to learn about culture and leadership from another perspective. 
   

Teams and Skill Sets for Leadership and Cultural Considerations

1. Ideally, companies will have dedicated teams that repeat deals and can extract data from past/similar deals, which can lead to more positive outcomes (of course, this is not possible in all organizations depending on size and resources) 
2. Help HR build a M&A skillset to drive positive outcomes
3. Leverage consultants when you have specific or difficult aspects of deals where your skillset is lacking; be sure to learn from the consultant so next time you can keep the work in-house...no one knows your company better than you do.
   

Retention Strategies

Retention of key leaders is often part of LOIs and deal conditions; it is also a fundamental assumption for business continuity. The following are successful retention strategies:

1. Retention is obviously imperative to deal success; the number one best practice when it comes to retention is to give employees a compelling reason to come to work everyday; do not focus only on top leaders - work hard during diligence to gain access to key people below the top leadership team and work to keep them by ensuring competitive compensation and a sense of a promising future.
2. There can be a time and a place for cash incentives, but remember, they are not the ultimate drivers of retention (see above); retention is truly a courtship. Furthermore, cash incentives should be tied to specific goals, such as value drivers. 
3. Avoid acquiring toxic leaders (leaders who just do  not want to be part of the new company) by interviewing the CEO and top leaders during diligence to assess what their goals are; this is also a perfect time to ask more questions surrounding key talent. There is nothing more poisonous to a deal than a business leader who does not want to be part of the new company.
4. Research tells us middle M&A managers have a large impact on deal success, especially for the acquired company; therefore, engage with middle management because it keeps the company running and acts as an agent of change.
   

Final Thoughts

Analyzing and isolating key characteristics related to leadership and culture will help you meet your overarching deal goal; these activities are paramount to conducting successful deals.

Many practitioners recognize the importance of these areas, but they often fall short when understanding how to approach them and what to do about them.

Increased focus on developing strategies to better understand both culture and leadership during each deal stage will ultimately yield stronger results. 

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