Article summary: Research shows that culture is a leading cause of failed mergers and acquisitions (M&As) – but it doesn’t have to be. This article outlines five essential steps for HR leaders: 1. Run a cultural assessment pre-deal, 2. Define a clear culture strategy, 3. Embed people-centred change practices, 4. Build emotional intelligence across teams, and 5. measure cultural success with concrete behaviours and outcomes.

Mergers and acquisitions (M&As) are one of the fastest ways for an organisation to achieve growth, enter new markets or, in some cases, survive. In 2024, approximately 36,000 M&A deals were completed worldwide, worth a total value of $2.6 trillion.

And yet getting M&As ‘right’ has proven difficult. Over the past 40 years, analysis of 40,000 acquisitions worldwide found that 70–75% of acquisitions failed to achieve their stated objectives, whether that be sales growth, cost savings, or maintaining the buyer’s share price. Why? According to Deloitte, cultural differences are the reason for 30% of failed integrations.

As Ernst & Young says in their 2024 People in Transformation research, ‘Leaders can no longer afford to underestimate the impact of organisational culture on transaction performance.’  

McKinsey research also shows that companies that manage culture effectively in their integration planning are around 50% more likely to meet or exceed their synergy targets, across both cost and revenue synergies.

Given the significant role organisational culture plays in M&A success, the Board needs to take cultural integration seriously.

Why is a focus on company culture fundamental to M&A success?

Evolving an organisation’s culture can be tricky at the best of times, but in the context of M&As, another layer of social dynamics is at play. As well as the typically heightened emotions involved in any change, people start to experience acculturation.

Acculturation is the dynamic that occurs when two cultures come into contact with each other, possessing different ways of working, communication style, decision-making approaches and everyday routines. In this scenario, people attempt to adapt to new dominant influences, or influencers, without compromising their own identity.

When managed intentionally and with high levels of emotional intelligence, acculturation can be a nourishing and beneficial experience. When it is not, the dynamic can result in immense frustration, stress, inefficiency and problems that fester unresolved until a crisis takes them to the top of the Board’s priorities. 

Five steps for M&A success

Given the significant role organisational culture plays in M&A success, the Board needs to take cultural integration seriously. Here are five practical steps to work through as part of your M&A plans.

Step 1: Run a cultural assessment pre-deal

It’s easy to assume that if two organisations have a similar set of values on their website their operating cultures will be similar. Equally, if both are building societies, or retailers, or charities, you may assume they will have similar priorities and ways of working. This is not typically the case and can come as quite a shock after the deal has been done and people start working together. 

Whilst there may be a limit to how much time can be spent in each organisation at this stage, it’s still important to run a cultural assessment that gives valuable insight into where the real similarities are and flags likely conflict points:

• Use existing culture survey data to assess the degree to which each organisation’s values, if they have them, are understood and embedded.
• Interview people involved in the pre-deal activities to understand the underlying traits in each culture. Ask: How do decisions get made? How direct or indirect is the communication style? What’s valued and rewarded? What’s the prevailing leadership style?
• Use existing customer data to assess the impact of each organisation’s culture, for example NPS scores, Trust Pilot reviews, and common complaints. 

Step 2: Agree on a culture strategy

With good insight into the existing cultures, the Board must agree on a unified a culture strategy to create value post-integration. There are essentially three options:

1. Preserve both cultures as they are.
2. Absorb one into another.
3. Evolve both cultures to develop a new one.

If you’re a large, perhaps bureaucratic organisation buying a smaller, agile, creative business with a culture that is central to their value, preserve it!

There may be different strategies for different functions. For example, in the HP-Compaq merger, the merged company kept HP’s strong Printer Division with minimal change, but integrated its sales force and adopted the Compaq culture. 

Evolving the culture of an organisation or function takes time and energy, so only address those cultural issues that are critical to the organisation. Be open and honest about culture change strategies to avoid inadvertent ‘power play’, especially by leaders who may assume that their heritage culture is ‘top dog’.

Connect people to the desired culture in terms that are meaningful for them.

Step 3: Adopt people-centred change practices 

Pecan’s People Engaged Change approach is a good example of a simple but important framework that takes people on their respective culture change journeys successfully. 

This is not just about ‘comms’! Make culture a distinct workstream in the integration programme, sponsored by an executive leader (not necessarily in HR). Make sure you scope out necessary interventions and resources as you would with other workstreams.

Culture change that works involves raising everyone’s awareness of the current culture. Connect people to the desired culture in terms that are meaningful for them, with interventions across all roles to shift mindsets and behaviours, and develop new skills and routines. 

Remember that culture impacts workstreams including the operating model, decision-making responsibilities, role descriptions and people processes. Appoint someone to lead this work who is an intuitive collaborator and influencer.  

Leaders are increasingly recognising that culture is the ‘hard stuff’ that has a direct impact on the bottom line.

Step 4: Develop everyone’s emotional intelligence

As mentioned earlier, acculturation can be a bumpy ride. Unhelpful behaviours that emerge during M&As include:

• Stereotyping – ‘they’re all X’.
• In group vs. out group thinking  – ‘they’re not as good as us’.
• Survival – doing anything to protect one’s job and reputation.

These behaviours are all human nature when we feel threatened by another group. Bring colleagues together to explore these dynamics, and to raise awareness and learn to navigate them. It can be a surprisingly fun and healthy way to build new, trusting relationships. 

Step 5: Measure success

In the past, culture was often seen as the ‘soft stuff’. However, leaders are increasingly recognising that culture is the ‘hard stuff’ that has a direct impact on the bottom line and, in this case, M&A success. 

When defining the culture(s) needed going forward, be as specific as possible about the behaviours that will help achieve your integration objectives. For example:

• Instead of using the word ‘collaboration’, you might use the phrase: ‘promote products of each other’s companies’.
• Instead of using the word ‘honesty’, you might use the phrase: ‘speak up when you have an idea to improve efficiency’.

This clarification makes it much easier to identify a concrete set of measures that add value to the organisation and help get leadership support. As the prevailing culture starts to embed within the merged organisation, the impact on colleagues, customers and commercials will also be clear. 

Further resources

• How to change workplace culture in 100 days – A practical framework for driving cultural change quickly and sustainably.
  
• Mergers and acquisitions: How to combine two workplace cultures – Guidance on navigating cultural integration during M&A.
  
• Need support with cultural integration? – Explore how Pecan Partnership helps organisations get the culture bit right during M&As.