Culture in Acquisitions

By Mark Berns

If culture is a company’s DNA, acquisitions are a bit like gene splicing. In an acquisition or sale, you want to combine the best of both worlds so you don’t end up with Frankenstein Inc.

Senior executives involved in hundreds of acquisitions report that ignoring a company’s culture is the leading cause of problems in acquisitions. So what IS this culture thing? And what does it mean to “pay attention” to culture – something that’s important not just in connection with M&A, but all the time?

Generally, culture is how things work in an organization. Not the formal org chart view, but how things REALLY work. It’s the company’s management style, history, strategic focus, and how and what it communicates. Are we customer-focused, market-driven, innovative or reliable? Is management directive, collaborative or a bit of both? Does the boss have an open door — and does he or she really want everyone to use it? Which way does communication flow?

I also see culture as the story we tell about ourselves. It’s what we believe in, what we talk about and how we play. It’s mission, vision and our relationships with each other and the broader world. It’s the story of how the company was founded and how we snatched the big deal from a competitor. It’s the all-out company effort to support a food pantry. It’s even that we always dress casually and have muffins on Friday.
Culture in Acquisitions
Think of a time when your company did something that made you extremely proud. Who was involved? What was your role in the success? What was it about the company or its employees that made it possible? OK, got it? Now go out in the hall, tap someone on the shoulder and say, “You know, I was just thinking about the time when…” and tell him the story. That’s culture. And odds are you’ll hear the story making the rounds.

All those things, and more, go into a company’s culture. They’re also part of what makes a company valuable to an acquirer.
 
If someone buys your software company, where engineers work flex hours in dim rooms, wear flip-flops and listen to reggae, what will happen if the buyer is all about 9-to-5, business casual dress, brightly lit cubicles and no music? Unless those programmers and their subculture are valued, a huge part of the company’s value is likely to flip-flop out the door.

What if you’re the potential seller of a company? What are your culture concerns?

If you’re just selling off part of the company, one concern is for those who remain behind. They may now have more work to do without those who are going with the sale. That’s frustrating and stressful. Equally important, they’re facing a loss — of the interactions with their suddenly ex-coworkers. A big piece of their culture is gone.

Even if you’re selling the whole company, let’s face it — if you’re any kind of leader, those are YOUR PEOPLE going to the buyer and you care about them.

For both buyer and seller, a key to preserving culture — and value — is communication.

It’s important — on both sides — to go as fast as possible, have a plan and communicate. Be ready with as much transparency as you can offer.

As a seller, you can help your people and help preserve the value of the organization you’ve built. Don’t just talk about the price when you’re negotiating — talk about the team and the way they work.

And once you’re able to talk to employees about the sale, be clear about what it means.

What does the future look like? What do you know about the acquiring company and its culture? Celebrate your company’s culture — especially its successes. Tell that story I asked you to think of a few minutes ago. If you’re going to the new company yourself, be available to your people and reassure them. You’re the most powerful advocate they’ve got. Acknowledge the loss if only part of the company’s going. You and your employees have to go through the stages of grieving. Help people grieve and move on.

As the buyer, obviously you’re hugely invested in the success of this investment.

Make sure the integration is planned and smoothly executed — interacting with HR, the location of the cafeteria, job descriptions, building passes, parking spaces, bathroom keys, employee manuals, etc. Show you’re on top of things and that you care about a smooth transition. Pair incoming employees with mentors who know the ropes and can explain the unwritten rules that govern how things work. Make sure that your integration team — in fact everyone who will deal with the newcomers — is aware of the acquisition’s value.

In addition, be open and clear about what the future looks like. It’s common in acquisitions for some employees to lose their jobs. Be open about that, too. Everyone will be anticipating it; the more upfront you can be, the better for everyone — even those who may lose their jobs.

As you integrate teams and departments, encourage them to share their real and perceived strengths. Unlike those companies trying to fit a square peg into a round hole by ignoring culture, you can help yours build a new, shared culture out of the best of both.

Mark Berns is the president of Ready About LLC.  He can be reached at 203-247-6369 or at mberns@readyaboutllc.com.

Copyright 2010 Mark Berns. All Rights Reserved.