M&A Culture Due Diligence: Debunking 3 Common Myths

Clear the Fog

Debunking the Top 3 Common Myths

Culture Due Diligence Optimizes Outcomes

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Myth 1: Financial Due Diligence is Important, People Due Diligence Can Wait

The story we’ve been sold:  The conventional process for M&A begins with M&A strategy, progresses toward target identification and includes other steps toward post-deal integration.  The deal process is time-proven, financial due diligence is more important than human capital due diligence, and there is no reason to change the standard M&A process.

The University of Pennsylvania and Harvard cite that M&A activity has reached historically high levels of failure, with rates as high as 90 percent.  And the #1 reason for failure is "Culture."

Fact:People due diligence is usually completed late in the deal process after spending significant time and money on financial due diligence.  Communication strategies for the target approach, ongoing deal communication, and negotiation are based on the experience of the M&A deal team.

Target team member behaviors, motivations, and communication preferences are not known, so opportunities to customize communication, build trust, encourage transparency, and develop engagement are missed.  Some promising deals are lost to competitors.   It doesn’t have to be that way!

The Solution: New technology allows dealmakers to use data to improve negotiations. Our CoreEngagersolution helps companies improve the probability of a successful deal close by early assessment of target company deal team members.  CoreEngager™ insights empower M&A deal teams to develop custom communication strategies during the initial deal stages, and these strategies are used to build trust, transparency, and engagement to close successful deals.

Myth 2: Selection of Post Deal Candidates is Important, People are Unpredictable

The story we’ve been sold:  Selection of candidates for the post-deal team is a high priority M&A deal component, and it is not possible to predict a person’s ability to work well as part of the post-deal team.  Some will perform well, others won’t, and post-deal executives will work through issues when they need to.  Retention of top talent is a big challenge that’s hard to control.

According to Daniel Kim’s paper, “Predictable Exodus: Startup Acquisitions and Employee Departures,” within the first year of a company’s acquisition, 33 percent of acquired workers left.

https://mitsloan.mit.edu/ideas-made-to-matter/your-acquired-hires-are-leaving-heres-why Tweet

The Fact:  M&A deal leaders who conduct people due diligence for target company top talent frequently rely on incomplete and ineffective evaluation tools, so they fail to gain useful insight into motivations and behaviors.  As a result, it is difficult to evaluate potential relevance, value-add, and the probability of engagement by proposed members of the post-deal team.

Deal leaders are forced to rely on ‘gut feeling’ to make decisions, and it is common for over half of the target company employees to resign during the two years after the deal closes.  It doesn’t have to be that way!

The Solution:  Get buy-in on day one by building trust with with Top Talent.  Culture Due Diligence technology helps companies improve their selection decisions for post-deal candidates by early data assessment of target company top talent behaviors and motivations.  Cultural insights, based on data, empower clients to develop custom communication strategies which are used to build trust, transparency, and engagement, and increase successful top talent retention.

Myth 3: Culture is Important, Post-deal Integration is Unpredictable

The story we’ve been sold:  Effective post-deal culture is challenging to design and even more difficult to achieve.  Target company leadership must exit at deal close for post-deal integration success.

Legacy Leaders are mostly displaced.

Fact:  Leaders of the legacy target company often fail to align and collaborate with the post-deal team, and this causes unnecessary delays and ineffective execution of integration strategies. Post-deal integration strategies are based on the experience of the M&A deal team with limited pre-close input from legacy target leadership team members.

Expectations are delivered, and mutual promises are made without a clear understanding of communication nuances. Pre-close and post-close team behaviors, motivations, and communication preferences are not known, and customized communication strategies are not developed.

Opportunities are missed as members of the post-deal leadership teamwork to gain scope clarity, set KPIs, and agree on expectations for accountability, integrity, and collaboration.  As a result, leaders limit their effectiveness in building trust, encouraging transparency, and developing team member engagement.  It doesn’t have to be that way!

Post integration leadership jobs are bigger and more complex. The skills needed may change markedly from current leadership responsibilities. Very few leaders are prepared to take on these 'hybrid' leadership jobs.

Tracy Levine, CEO, Advantage Talent, Inc. Tweet

The Solution: It is important to understand who are the key leaders that will drive success and who will be toxic.   Culture Due Diligence data on personalities and behaviors helps companies improve post-deal integration results by early assessment of post-deal leadership team members and their direct reports, individually and collectively.  Cultural data insights empower post-deal leadership teams to develop custom strategies for scope clarity, KPIs, accountability, integrity, and collaboration.  These strategies are used to design and execute a communication plan that builds trust, transparency, engagement, and EBITDA.

The CoreEngager™ Solution

The CoreEngager™ Solution

CoreEngager™ utilizes AI-based data analytics to support stakeholder due diligence and cultivates stakeholder engagement from deal inception through post-deal integration.