April 8, 2019

The Importance of Culture in M&A Success

Here’s a recent HBR article about how the cultural fit between buyers & sellers can impact the success of an acquisition. The authors contrast “tight cultures,” which are characterized by hierarchy, structure & precision, with “loose cultures,” which are more egalitarian & less centralized in their management and decision-making processes. Without proper planning, the article says that a merger involving companies with these cultural mismatches can head straight off a cliff. Here’s an excerpt:

To understand more about how mergers between tight and loose cultures work, we collected data on over 4,500 international mergers from 32 different countries between 1989 and 2013. The study took into consideration factors such as deal size, monetary stakes, industry, geographic distance, and cultural compatibility. We found that mergers with more-pronounced tight-loose divides performed worse overall. On average, the acquiring companies in mergers with tight-loose differences saw their return on assets decrease by 0.6 percentage points three years after the merger, or $200 million in net income per year. Those with especially large cultural mismatches saw their yearly net income drop by over $600 million.

The authors offer advice on strategies to successfully negotiate cultural differences during the pre-deal planning stage and in the implementation stage of the transaction.

John Jenkins