Sat. Apr 13th, 2024

Company Culture Issues that Lead to Failure of Acquisition

an M&A deal origination platform

It is observed that 70% to 90% of mergers and acquisitions do not end well. A series of reasons or factors are responsible for it. Probably, they might not be able to figure out the best-fit approach for business integration. Here in this post, we’ll see how to make the best deal ever

Cultural Issues in Acquisition 

When it comes to acquisitions, the company culture of the acquired company is indeed important. It helps you determine if the deal is going to fail or succeed. Here are some common issues in the company culture that are significant in acquisition:

  • Compatibility

Here, compatibility refers to the co-existence of two corporate cultures together without any conflicts. To have compatibility in this culture is indeed vital. If their cultures are different, they will fail to match with each other. It may become a horror story. So, vastly different cultures are difficult to integrate and achieve the desired synergies. The following points can help in understanding the area of conflicts in a merger or acquisition. 

  • Culture

It is obvious that the combination of two companies means the integration of different corporate cultures, values, and ways of working. So, the most problematic areas are the aforementioned ones. If these problems remain unaddressed appropriately, they can create conflict and tension, or even slash down turnover.

  • Technology

It might be easy to find an opportunity on an M&A deal origination platform. But, its success depends on two companies that are involved in it. They may be using different technology systems, platforms, and tools. The acquisition necessitates the merger of these systems, which is not like a walkover if you don’t do it correctly. It results in compatibility issues, data loss, or even system failures.

  • Processes

The third type of incompatibility is seen in processes. The buy-side and sell-side parties may have different business processes, policies, and procedures for operations. These differences can create confusion, inefficiencies, and errors if they are not standardised or combined properly.

  • Human resources

Human resource incompatibility may be seen in employee benefits, compensation structures, and HR policies. These differences often end up in employee dissatisfaction, confusion, and even legal issues.

  • Legal and regulatory

 Two companies in the acquisition agreement may operate in different jurisdictions. They often have differences in legal and regulatory requirements. These variables can result in compliance issues and legal risks if they are not addressed appropriately.

  • Customer base

Every company has its own customer base. They address different needs and expectations, which are corresponding to their customer bases. If these variations are not settled down, it can result in customer churn, dissatisfaction, and declining revenue.

  • Leadership

The leadership of the acquired (target) company should be aligned with the leadership of the acquiring company. It means that all key employees or top-down authorities are critical, not just the CEO. So, you should carefully retain leaders for the success of this integration. But, this job is not easy. It comes up with several leadership issues. Let’s discover the most common ones:

  • Communication

Communication keeps things aligned and roles active. It is key because it allows leaders to effectively communicate with both, their own employees and those of the acquired company. There should be transparency about what’s going on and how it’s going to impact employees. These things are possible with seamless and consistent communication. 

  • Retaining talent

An acquisition is oftentimes seen as a time of uncertainty for employees. Here, leaders must try hard to retain key talent during the transition. For this purpose, a number of strategies can help. Creating retention bonuses, offering new opportunities within the combined company, or other incentives can pause attrition.

  • Managing change

The M&A process can make significant differences in both companies. So, leaders must be efficient enough to manage these changes effectively. For this purpose, they may require reorganising departments, streamlining processes, and aligning the company’s goals and objectives.

  • Maintaining focus

It’s indeed a big thing to acquire a company. It may distract leaders and employees. So, here you need to ensure that they are focused on the company’s core business during this time. With an emphasis on the core, leaders will be able to continue day-to-day operations smoothly. It would eventually impact goals and results, which would certainly be corresponding to goals and objectives.

  • Financial management

This process is vital in terms of a financial undertaking. Here, leaders must take care that the acquisition is financially viable. And also, the company should be able to manage any debt or funds required for the transaction.

  • Employee engagement

The level of employee engagement in the acquired company should be measured timely. If employees are not engaged, it won’t be it easy to retain key talent after the acquisition.

The approach that Really Works to Attain Success in M&A Deals

After a deal, it is crucial to ensure that the culture of the merged companies is integrated successfully to achieve long-term success. Let’s get through some approaches that can help in succeeding the company culture post-merger:

  • Communicate the New Culture: The M&A results in the formation of a new company culture. So, the new entity needs to communicate clearly and consistently with employees across both companies. It should be two-way communication, which includes a clear understanding of the company’s values, goals, and expectations. It guides the merged companies to operate together without any hassles.
  • Assess the Existing Cultures: There should be a thorough assessment of the existing cultures of both companies, which helps you to identify similarities and differences. This can help in discovering areas where integration is a must-have, as well as such areas that should remain separate.
  • Identify Common Goals: Identifying common goals between the merged companies can help in aligning the culture towards achieving the ultimate goal (that led to the merger). This can help in creating a sense of purpose and togetherness. 
  • Empower Employees: Here, empowering is for employees who will be able to shape the new culture. It will certainly give a rise to a sense of ownership and engagement. This is achievable if you host training programs, feedback sessions, and other initiatives that encourage employees to come upfront and contribute to the new culture.
  • Lead by Example: Prepare leaders to set an example by embodying the new culture. They should prepare a behavioral model in accordance with the expectations of employees. This initiative will create a positive culture that employees would love to follow. 
  • Celebrate Success: This is a proven practice to celebrate successes, both big and small. Doing this helps in adapting to the new culture and creating a positive work environment. To make it effective quickly, you can rely on recognition programs, team-building events, and other initiatives like the celebration of achievements and collaboration.

By implementing these approaches, companies can successfully integrate their cultures after a merger and achieve long-term success.

Summary

The company culture of the acquired company is an important consideration in an acquisition, and it is important to evaluate the issues related to culture, communication, technology, talent retention, and financial and compliance management carefully to ensure a successful integration.

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