Cultural cohesion is amongst the most important factors affecting the outcome of any merger and acquisition, yet it is often overlooked by the integration teams and deal makers.
Almost 95% of executives believe that cultural integration is a mandatory element in securing successful M&A transactions. At the same time, 25% believe that failing to integrate cultures is a key factor in unsuccessful deals.
What exactly is corporate culture, and what cultural challenges do companies often face while merging? How can executives and dealmakers overcome those challenges, and what role technologies like the virtual data room can play in successful M&As?
What is a corporate culture?
Corporate culture, in simplest words, is shared traditions, values, ethics, and behaviors in an organization. It may include how management treats employees, how they reward them, and how an organization treats customers. Other elements may include communication ethics, collaboration, productivity, and the attitude toward the use of technology and innovation.
It is not hard to understand that cultures vary from organization to organization. One company may rely heavily on automation, and the other may prefer more manual input. If these companies merge, integrating and managing two different cultures will be hard.
Common challenges in merging two corporate cultures
Did you know that 1 out of 7 mergers or acquisitions fail, with cultural clashes being the top reason.
To mitigate cultural risks, it is essential to build a culture of transparent, proactive, and mutual communication.
Let’s explore the common cultural and communication challenges in M&As and how they affect organizations.
Modern-day organizations usually make decisions after taking input from all departments at all levels of the hierarchy. However, many others still work by making decisions at the top and then enforcing them. When two merging companies have different decision-making styles, they struggle to make timely decisions and fail to implement them timely.
Leadership styles also vary in organizations. Some prefer dictatorial, while others may go for consultative. Contrasting leadership styles can lead to serious concerns, such as higher employee turnover. Dictatorial leadership may fire employees who object to the change. It is safe to say that rigid leadership styles may result in top talent leaving the company and affecting the overall value of the deal.
How an organization greets the change will also have a huge impact on the chances of a successful merger or acquisition. If the workforce in merging companies is willing to take risks while striving for current goals, they will go through the transition with ease. On the other hand, a status-quo-loving workforce will resist change and create difficulties in forming a new entity after the merger.
There are organizations that promote “individual stars,” while others focus on achieving success through teamwork. Again, these cultural beliefs can create trouble. People who favor personal success will find it hard to integrate into a team and vice versa. These situations also create personal likings and dislikes, resulting in no or minimum support in getting team tasks done.
Following are some important steps that dealmakers and management can take to minimize the effects of cultural differences:
- Keep cultural integration as an integral matter to address during the transaction. Empower the change management teams so that they can make better decisions to minimize the resistance from both sides.
- When two companies merge, they usually prefer adopting or taking the “best” from both sides and taking it to the new entity formed. Rather than focusing on the best, companies should look out for each other’s strengths and carry them forward. For example, if one company acquires a startup, it may consider retaining its enthusiastic and creative workforce.
- Pay close attention to the compensation programs on both sides and try to make the new approach look beneficial for employees.
How can virtual data rooms assist in mergers and acquisitions?
Data room or digital data room is online document management software which businesses use for online communication, data storage and sharing, and project management. Ronald Hernandez, the Founder of Dataroom-providers.org, believes that: “Communication is the cornerstone to handling cultural differences and boosting the chances of successful mergers and acquisitions. Virtual data rooms play an integral role in ensuring a mutual, efficient, and transparent communication between the parties before, during, and after a business transaction.”
Dealmakers and corporate boards regularly use dataroom software to ensure safe data sharing and communication during mergers and acquisitions.
Electronic data room software targets one of the biggest issues in an M&A transaction — communication. Here is what else a data room can offer to dealmakers:
- VDRs simplify the data-sharing process during and after mergers or acquisitions. Both parties can exchange information in real-time, helping each other make informed decisions.
- Dataroom software ensures two-way communication throughout M&As and the post-merger stage. Participants can use different modes of communication (meetings, Q&As, group chats, and individual chats) during the process.
- Virtual data rooms, most importantly, reduce administrative costs (by minimizing the need for paper documents and physical meetings) during M&As.
Some notable virtual data room services include iDeals, SecureDocs, ShareVault, DealRoom, and Caplinked.
Leadership styles, decision-making practices, communication barriers, and unwillingness to accept change are common cultural issues dealmakers face during M&As. Prioritizing cultural differences and empowering change management teams to tackle them can boost the chances of successful M&As.