The Challenges of Cultural Integration in M&A

A new survey out this week -Mercer's Cultural Integration Snapshot Survey -found that cultural integration issues in M&A transactions have direct financial implications on deal value. The survey involved 119 organizations in the Americas and Europe. More than half of respondents reported that the success of recent M&A was negatively impacted by integration issues.
 
In the American survey, 44% of respondents reported that between $1 million and $5 million was lost or not realized in a significant transaction their organization had recently undertaken, with nearly one quarter estimating that it was over $5 million.
 
Although 72% of survey respondents cited culture as an important contributor to creating value in M&A transactions (with nearly one-third saying it is critical), the survey highlighted the fact that many organizations were not well-prepared to effectively manage cultural integration issues. While nearly one quarter of companies are moving toward developing a more formal cultural integration process, 68% still do not regularly use a systematic approach to identify gaps between organizational cultures.
 
Here's something that MDM often hears to be a critical factor in integrating acquisitions: executive-led cultural change. Just 37% of organizations surveyed said that they had invested to some extent in developing managers with the expertise to understand and lead cultural change, with 28% indicating that they have invested very little or not at all. What's more, many organizations may not have the right people leading the changes required for cultural integration.

While HR professionals were viewed as being key culture change champions, only a quarter of senior executives were reported as co-leaders of cultural integration efforts in their organizations.  
Mercer says that organizations should work to develop processes, tools and capabilities aimed at reducing risks and taking advantage of the opportunities presented by culture before, during and after a deal closes.
 
According to Bob Bundy, Mercer's M&A global leader, the key is to start making assessments of cultural differences that will affect deal value as early as possible during the initial consideration of a deal. It is remarkable just how much information we are able to gather and analyze even without 'touching'the target,"said Mr. Bundy. "Using non-invasive methods, we are able to inform senior teams about just how differently the two organizations operate and behave, and identify potential challenges and risks to deal success. This information is invaluable to factor into purchase considerations, including the purchase price and the cost of successful integration."
 
Mercer is a consulting, outsourcing and investment services group.