M&A: Testing The Waters Before Jumping In
Posted on Tuesday, April 10, 2018 Share
When considering a merger or acquisition, the most opportune time to find out about possible culture clashes is obviously before the deal is complete. In fact, one often-cited reason for mergers or acquisitions that fail to get off the ground is concern about potential cultural integration problems. Avoiding such costly pitfalls by conducting a cultural evaluation has become a high priority for most companies considering transactions.
While other facets of due diligence focus heavily upon quantitative factors such as assets and liabilities, a cultural evaluation conducted by a professional adviser assesses more subtle qualitative factors that go into a merger or acquisition. This can include an assessment of the values of each company, as well as each organization's management style, work environment and founding philosophies.
Strategic visions need to be examined to determine areas of compatibility and synergy. In addition, the employees, customers and shareholders of each firm are generally evaluated in an effort to assess areas of common ground and avenues of potential conflict. While no integration between two organizations is ever seamless, significant obstacles can be identified early in the process to determine if potential culture clashes might outweigh the benefits.
Steps at Each Stage of the Deal
While a cultural evaluation is a critical component prior to a merger or acquisition, there are basic factors assessed during all stages of the process:
Pre-Merger Stage - A cultural evaluation identifies leadership and middle management styles, as well as each company's values and work environment. An intercultural assessment is conducted to determine a cultural framework to guide early discussions.
Active Merger Stage - The evaluation monitors the progress of discussions, keeping the framework of the initial assessment in mind. The team provides a consultative analysis of any potential conflicts in management styles they foresee based on their observations of the negotiations.
Planning for the Post-Merger Stage - An evaluation can also provide valuable input that lays the groundwork for integrating the two cultures, management styles and work environments. It is vital that post-merger steps be planned prior to the deal being finalized. It is at this stage when many mergers or acquisition efforts fall through due to culture clashes that create insurmountable obstacles.
In the past, many companies failed to fully comprehend the difficult path of cultural integration that lay ahead. As a result mergers and acquisitions were finalized without due consideration to this issue and incompatible companies wasted valuable resources attempting to bridge a wide cultural chasm. These days, however, with a thorough cultural evaluation, companies tend to create unions that are more compatible than in the past.
Cross Border M&A: Bridging the International Divide
With the sharp rise in international M&A transactions, cultural evaluations have taken on a whole new meaning. With these complex unions, cross-cultural factors need to be carefully examined prior to a transaction. In these cases, cultural differences need to be assessed and the potential benefits of cultural diversity needs to be evaluated for each organization.
In cross-border cultural evaluations, specialized knowledge is often needed with regard to the sensitive areas for each organization. The companies need to forge understanding across cultural divides. The evaluation can provide a detailed analysis of potential cross-cultural pitfalls in the negotiation process as well as the post-integration stage.
An Ounce of Prevention Versus a Pound of Cure
It used to be that the predominant focus of a pre-merger or acquisition evaluation was the quantitative side of the equation. The financial issues were thought to far outweigh the value of the qualitative issues. These days, however, companies have learned the importance of focusing on the whole picture with the goal of ending up with an integrated plan in which all of the divergent puzzle pieces eventually fit together. With this type of planning, companies can be more confident that the transition will be a smooth one down the road.
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Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.