Money Can’t Buy M&A Happiness If Culture Is A Mismatch

The money has to be right when you buy, sell, or merge a business. But people are what make a deal fail or succeed. That’s why it’s essential to address the cultural fit when bringing two companies together, experts say.

People shape a company’s culture by defining its core values, attitudes, beliefs, and practices in the eyes of customers and partners. Attempts to integrate two organizations with wildly different cultures may work. A more likely outcome, however, is turmoil—at least for the short term.

Kathy Wagner

“A cultural mismatch will kill the value of your deal,” says Kathy Wagner, chief financial officer at Kaseya, who has extensive M&A experience. Kaseya has an M&A Concierge Platform that facilitates target identification of MSP buyers and sellers. The program also helps them with post-sale integration and migration services.

While economics, workforce acquisition, and geographic expansion tend to drive deals, Wagner adds that “none of these things will achieve their potential value if the acquirer and target are not a cultural fit.”

If employees are unhappy with the integration of two companies, they may stage a mass exodus, taking institutional knowledge with them, says Amy Babinchak, who recently sold an MSP business. She also has a consultancy, SellMyMSP, which helps companies get through the selling process. “Institutional knowledge retention is something that is often overlooked by buyers,” she says.

RELATED: 7 Reasons Why M&A Deals Fall Apart

Assess Culture Up Front In Negotiations

Reviewing culture should be a first step in negotiations, according to Tom Glover, chief revenue officer at Responsive Technology Partners, an MSP headquartered in Georgia. Glover sold his MSP to Responsive Technology Partners and has been involved with six acquisitions since. He views culture as being intertwined with long-term performance.

Tom Glover

Both parties should watch for differences in how employees support each other, how management treats employees, and how the company treats customers.

“Customer service orientation is the most important thing to be aligned on,” says Wagner. “A culture of ‘the customer is always right no matter what’ may clash with a view that ‘the customer is right within reason.’”

Differences in style—such as the length of the workday—also come into play, she says. A team that works fewer hours may consider one that works longer days inefficient. Meanwhile, the group with longer days may view the other team as lazy.

Glover watches for employee and customer churn, which may indicate cultural issues within an organization. “If a company has a customer satisfaction survey system in place like SmileBack or Crewhu, then reviewing customer feedback from those would point out potential issues,” he notes.

How To Get Around The “Getting To Know You” Challenge

When possible, Glover says his company interviews key stakeholders to learn their approach to customer service, employee retention, and community involvement. “We also dig into customer pricing, customer adds and losses over the last 12 months, and ask probing questions about why customers left,” says Glover.

But getting a sense of the other company’s culture isn’t easy, says Tom Andrulis, CEO of MSP Intelligent Technical Solutions (ITS), an IT solution provider with offices throughout the United States. ITS has completed 16 transactions, including partnerships with no money exchanged as well as traditional M&A deals. “If you’re buying a company, the biggest challenge is that the seller doesn’t want to let their staff know that they’re going through a transaction,” he says.

It’s hard to know why employees want to work for a new company when you can’t access those employees, Babinchak agrees. She recommends questioning the seller’s management team early on about work, employee support, and problem solving.

Sometimes the seller will allow contact with some stakeholders. “If we can talk to someone on the team, that definitely increases our confidence, but most of the time, it’s really not possible,” Andrulis says.

Those who have completed multiple transactions say they learn to rely on a gut feeling to help them make a decision. If something about the other party rubs you the wrong way, take note, they say. Pay close attention to how they answer your questions.

“You’ll either feel excited about bringing these people in, or you’ll be anxious or even agitated,” Babinchak says.

Wagner says issues tend to reveal themselves in conversation. “Ask what KPIs the acquirer or acquiree measures,” instructs Wagner. “This will tell you a lot about what is important to them. Companies measure what they care about.”

Why You Should Keep Talking

Wagner stresses the importance of communication and openness. “The more up-front you are, the easier it will be to determine if you have a good match,” she says.

Tom Andrulis

Communication is also important after signing on the dotted line. Andrulis likes to call a meeting with the team of an acquired company. He’ll ask, “What’s your biggest fear?” It helps break the ice, giving Andrulis an opportunity to allay their fears. It also helps with the next transaction. “We take that feedback and build it into the next meeting that we have to make sure we talk about that concern before it comes up,” notes Andrulis.

Invariably, he says, employees’ biggest fears revolve around whether they will keep their jobs and whether their salaries will change.

Owners, too, also worry about what will happen to them. Throughout the process, their attitudes are very revealing, Andrulis says. When owners show they care about their staff, it makes for a better cultural fit. “Human beings care for one another,” observes Andrulis. “They want to make sure the people close to them are taken care of.”

Every Culture Is Different, But Some Fit Better Than Others

No doubt, there are differences in every culture.

“Some companies’ employee culture is competitive and individualistic,” Babinchak notes. “Some are team oriented. Some are ‘bro culture’ with memes all day. Some are kittens and last night’s movie.”

Before you seal a deal, however, make you’re not trying to force-fit a “kitten” culture into a hard-driving “team” culture.

Pedro Pereira is a freelance writer in New Hampshire who has covered the IT channel for two decades. 



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