Cultural issues stop a third of M&A deals from hitting targets: Mercer

One of the biggest factors that can derail a merger has nothing to do with the size of the companies involved or their sales numbers, a Mercer survey said.

Culture, if not managed properly, can prevent new organizations from achieving their purpose and strategic goals, Mercer said. A third of M&A deals fail to meet financial targets due to cultural issues, the report, “Mitigating Culture Risk to Drive Deal Value,” says.

Two-thirds (67 percent) of executives questioned said cultural issues delayed the savings a transaction promised. Another 43 percent said cultural issues caused a delay in completing the deal, caused the deal not to close, or affected the purchase price.

The report polled 1,438 deal executives, including business leaders and M&A advisers, from May to August. Forty-three percent of the execs were non-HR professionals. Mercer also questioned executives in person or by phone to compile the report.

Mercer said culture is hard to define; everyone has a different idea what it means.

“Culture is your operating platform or what your business is all about,” said Jeff Cox, lead author of the report. Cox is a Mercer senior partner and global M&A transaction-services leader.

Sixty-one percent of executives questioned said culture referred to how company leaders behaved, while 53 percent equated culture with governance.

Forty-six percent defined culture as communication: the company’s nature and approach to information sharing. Another 46 percent said culture was working environment, which includes the physical space in which they work and the overall feeling, whether it’s formal, cordial or hard-driving.

“If these operational risks are not recognized and addressed, they can lead to low productivity, flight of key talent, customer disruption and value destruction,” Cox wrote.

Mercer noted that company leaders are under pressure during an M&A transaction. This could lead to poor communication of the deal rationale to rank-and-file employees, the report said. This can hurt financial performance, Mercer said.

“Key executives can collectively agree on any number of critical integration objections, but if any one of them acts counter to the plan they settled on as a group, it can seriously derail execution,” the report said.

Action Item: Email Jeff Cox at