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Building the business case for culture in M&A

Findings from the Willis Towers Watson M&A Culture Group

Mergers and Acquisitions
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By Jim McKay | September 30, 2020

This paper focuses on how advanced M&A practitioners created the business rationale for incorporating culture as part of their M&A process.

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About the series

The intent of the series, The M&A cultural practices of advanced acquirers, is to share the current state of leading practices in cultural work, specifically and only for the M&A situation. To view the white papers in this series refer to the series page or the "also in the series" list.

This is the second paper in the series about “The M&A cultural practices of advanced acquirers.”

The first paper showed how M&A practitioners brought structure and discipline to cultural discussions through capturing in one place the parts of culture that have the greatest impact on a transaction. This paper focuses on how they created the business rationale for incorporating culture as part of their M&A process in the first instance. Each firm has different ways of describing the work they do in “culture” and so the terms “cultural work,” “assessments,” “investigations” and “organizational assessments” (the term several use for their cultural work) are used interchangeably. The important point being that each firm has an organized and disciplined approach to the work and a clear rationale for what they do and why they do it.

As in any approach to complex problems, the first step is to understand the specifics of the business situation. For M&A deals this means understanding how a transaction is put together, from beginning to end, and what happens, and what is important, throughout this journey. To achieve this means understanding, the deal life cycle, the phases within this cycle and the goals within each phase before determining where “culture” fits.

This paper is based on the findings from a unique and highly experienced group of M&A practitioners that meet on a regular basis with Willis Towers Watson to share and discuss their views on this area. Each firm’s participants are drawn from its in-house M&A functions, representing corporate development, business development or corporate strategy (the term varies based on each firm’s internal definition of the role) and its Human Resources M&A group. Throughout the series, the content reflects the discussions within the group and not the sole practices of any one firm.

The distinguishing feature about the group that will also help readers understand the content better is that cultural investigations are an accepted part of their M&A process.

Commentary on studies on culture in M&A

The group reviewed the vast amount of external research in this area to consider what could be learned from what others outside the group were doing. The comments below reflect the summary of several of the group’s discussions in this area but are not specific to any research paper or article.

Generally, the research confirms that, by any measure, M&A is a complex, high risk venture. Based on the source of the research material, between 50% and 70% of deals fail to meet their intended goals. This statistic does need more explanation. It relates to whether the deals reached or exceeded the goals on which the decision to invest was made. But it does not mean these are necessarily bad or poorly performing deals; they may well be profitable in their own right, but they have not reached the profit and performance measures on which the deal investment was based, or for a deal built upon multiple goals, only some of which have been fully met.

The research shows that cultural issues consistently rate as a key source of deal failure. Generally, though, studies did not have a consistent definition of culture and definitions were either based on author’s definition, not defined at all or often applied with the benefit of hindsight to a deal already classified as a “failure.” Therefore, there is no certainty in reviewing the studies that respondents were thinking about the same issues and terms when responding to their views on the role of culture in deal failures. But this is not an uncommon finding, in that when respondents are asked about their definition of culture, answers can vary, even for respondents within the same organization.

But no matter what the definition, culture is clearly one of the most complex areas for organizations to address; partly because these organizations find it hard to express the compelling business reasons to conduct cultural work in M&A in the first place and partly because they don’t have the knowledge, skills or experience to do anything meaningful about it.

Culture is clearly one of the most complex areas for organizations to address.

Download the paper and the deal life cycle table to learn more about this topic. Our M&A experts explore:

  1. The deal life cycle and typical goals
  2. How these acquirers built their business case and the ROI question
  3. Eight key steps in building the business case
  4. Who uses the output of this work?
  5. Summary and conclusion
Author

Managing Director, North American M&A Human Capital and Benefits Leader

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