6 Questions to Ask About Culture in Any M&A Deal

Understanding cultural fit in Mergers & Acquisitions is essential for successful Integration, long-term alignment, and preserving the talent and identity that drive lasting M&A results

There’s an old but often cited collection of studies that say the failure rate of mergers and acquisitions is between 70%-90%. Adding to that, Mckinsey published a survey last year of over 1000 M&A leaders and found almost half of them cited “lack of cultural fit” as a key driver of why deals fail. From where I sit, that number seems low. For buyers, if the goal of an acquisition goes beyond sheer metrics and bottom-line growth, there is a vested interest in helping the prospective team evaluate cultural fit. When you successfully help owners understand your culture beforehand, you are really helping them understand the following:

• Will my team and I be happy post transaction? Or will we see an exodus of talent?
• Will we be energized about the future? Or nostalgic about our past?
• Will we see opportunity ahead? Or only obstacles?

Despite how critical this is to the success of a deal; I am often struck by how little structure there is for sellers to research and understand cultural fit as a key indicator for their team’s future success. So, after years of being immersed in acquisitions, I wanted to share some quantitative and qualitative data points that can help you truly look beyond a firm’s metaphorical four walls and test drive their culture.

1. In the last year or two, can you describe a time when your firm backed out of a deal under LOI for not being a cultural fit?

We learned early in our lifecycle that having a great culture is not about who you let in the front door. What matters more is who you prevent from coming in the front door. If culture is on the list of priorities for your business, asking this question helps you understand how culture is truly prioritized.

2. What percentage of “owners” stay with the acquiring firm after the earn-out (if applicable) is completed? What percentage of owners stay over five years and then over ten years?

There is no greater proxy for culture than whether firm owners stay or leave after joining a bigger team. The question is rarely asked, bankers almost never go back and ask their clients, and most firms could not even come up with the answers. Ask... and if the answer is not readily available, then pick a year and ask the firm to do the research and find out.

3. Does the company have a team of people responsible for “people and culture”?

Understand that this team is critical to nurturing a vibrant culture. Spend time with them and you’ll start to understand how intrinsic culture is to the company’s strategy and, for larger firms, whether that culture extends from local teams to the C-suite. If this team does not exist, you have your answer already.

4. What is the Glassdoor ranking of the firm and the CEO? Also, what is the tenure of the CEO?

What current and former employees think of a firm is critical information that speaks to the culture of an organization. Rarely does this question get asked. There is no place for a firm to hide when it comes to this information and no excuses to address what the data says.

5. What is the firm's equity structure and percentage of overall employees who are shareholders?

Equity isn’t just an economic issue. Strong company cultures should be excited to talk not just about their historical equity growth, but also about the number of new employees who are given equity. Said another way, what percentage of employees in the firm have equity?

6. Does the firm track its Net Promoter Score (NPS)?

No matter how a firm may try and communicate their culture, how their clients feel about the services being delivered is a meaningful barometer of a healthy culture and engaged teams.

Summing it Up:

Ultimately, merging a business is a vulnerable position for firm owners to be in. If what you seek from the merger is to be a part of a vibrant culture and provide your team with an opportunity to grow both personally and professionally, there is a lot at stake. Thankfully, the above all serve to get you closer to answering the main question at hand, “is what I am doing in the best interest of my family, my team and my clients?” Before selling your business, the answer should be a resounding YES!

Read the full series from Mike and Connect with him on LinkedIn, here. To hear more from leaders who joined OneDigital through acquisition, visit the Why OneDigital Hub.