Cultural transformation is the hidden key to mergers and acquisitions. About half of mergers and acquisitions (M&A) fail to create any value. Depending on whose numbers you use, some 44-76% of mergers actually destroy value, making the combined company less valuable than each company would otherwise have been.
Yet, CEOs feel tremendous pressure to do acquisitions. Why? Because M&A is typically a way to grow revenue at the cost of the balance sheet.
Top Two Reasons Mergers Fail
Almost all of the money spent on due diligence is spent on financial and structural issues. However, when you interview the CEOs of failed mergers and acquisitions, the two big reasons they cite are human issues:
- Culture Clash (including differences in management style)
- Talent Loss
Both are human factors on which almost no due diligence is done prior to mergers.
As part of due diligence, companies must assess which aspects of the cultures are going to clash and which are going to be compatible. Then, they will know what they will need to work on and what they must do to retain talent.
Don’t Miss the Most Valuable Merger Opportunity: Cultural Transformation
There is an often-missed, immense opportunity in any significant merger or acquisition for cultural transformation. The combined company can unhook from the past of both companies and invent itself anew. Having unhooked from the past, the new combined company can invent a new culture distinct from that of either company.
Successful cultural transformation creates new possibilities where none previously existed. In our work with companies on cultural transformation, we have seen them adopt strategies that were never considered or were once thought impossible. New competitive advantages become apparent, propelling the merged company to previously unattainable results.