Quantifying and Assessing Culture Is the Key to Successful M&A
Mergers and acquisitions (M&A) are often an important growth strategy for businesses of all shapes and sizes. M&A can help companies stimulate growth, access new markets and customers, increase capabilities, diversify products or services, gain market share, or influence supply chains.
While M&A tactics are an attractive option for companies big and small, merging two entities is harder than it looks. And when deals don’t live up to expectations, misalignment of company culture is usually to blame.
Every organization, from large corporate entities to small local businesses, has a company culture. Company culture encompasses the values, vision and behaviors of the organization itself, its leaders, and the employees that work there.
Businesses that attempt to create a strong, sustainable company cultures have a competitive advantage and are often more successful than those that don’t. These workplaces are healthy; they let their core values guide decision-making and view their work as an important contribution to their employees, their communities and society overall.
This is why it should come as no surprise that when the cultures of two organizations are well-aligned it lays the foundation for a smooth, successful M&A transaction.
Considering, assessing, and understanding company culture should begin during the due diligence phase and continue through closing. It’s estimated that 50% (and as much as 70- 90%) of M&A transactions fail to meet their original business and financial goals, regardless of what it looks like on paper. Most M&A failures are due to the human factor and thus it’s imperative to consider culture from the get-go to help set up your transaction for long-term success — for the business, the employees, and its competitive position.
“Asking questions surrounding culture and purpose enables the discovery of values, leadership philosophy and other intangibles that might not show up otherwise,” said EPOCH Pi co-founder, Lynn Carpenter.
Quantifying Company Culture
Company culture is effective and sustainable when it produces results that exemplifies a healthy and productive workplace. But unlike calculating a company’s performance — which is straightforward, you look at the numbers — how do you measure culture? Being so conceptual, where do you even look to find it?
1. Mission, Vision, and Values
The most obvious place to find company culture is in mission statements, brand vision and core values. However, it needs to be more than just cursory statements, but rather your organization’s guiding principles, underlying beliefs and the essence of your company as a whole.
How do you demonstrate your philosophy to your customers and employees? Will the integration alter your overall brand purpose? If so, how will you communicate this change?
2. Corporate Social Responsibility
In recent years corporate social responsibility has become a bit of a buzzword but it can also be a way to measure culture and values. Contributions to the greater good, whether monetary or otherwise, are telltale signs of company culture.
What is the role of philanthropy in your organization? Do you and your employees engage in volunteerism? What ethically-oriented operations and practices does your business exemplify and encourage?
3. Leadership
Your company’s executive team is responsible for bringing your company culture to life. Their communication style and approach to leadership set the standard for the organization’s culture.
What is the standard leader—subordinate relationship like? Are leaders responsible for mentorship and coaching? Is authority delegated so people can act on their own? Do leaders/managers practice what they preach? Is there an ethical code that guides behavior and tells people right from wrong?
4.Employee Engagement
From the work environment to health benefits to company socializing, your employees are great gauges of how your business demonstrates culture. How do you show your team that they are valued? Is teamwork used to get things done rather than hierarchy? Is cooperation across different parts of the organization encouraged? What role does the HR department play in the day-to-day operations of the business?
If you’re unsure of where you stand, staff pulse surveys are a good way to evaluate employee satisfaction, work environment and more.
5. Communication
Communication is key. No matter what the channel, the ability for employees to send, receive and understand information are important criteria for company culture.
What tools do your employees use to communicate with each other? From internal correspondence to external messaging, how is company information established, shared, accessed and distributed? Is information widely shared so that everyone can get the information he/she needs when it’s needed? Is there a clear strategy for the future?
Assessing Culture for M&A Transactions
At EPOCH Pi, we take a different approach to traditional investment banking by incorporating values and cultural assessment tools to help our clients evaluate potential partners on aspects like core values, leadership style and philosophy.
While cultural differences aren’t necessarily deal-breakers, they do deserve careful consideration when examining potential business integrations. Which is why we’ve built on our 25+ years of experience with certifications from independent industry organizations to help quantify and assess these intangibles.
Barrett Values Center Certification
With the Barrett Values Center culture assessment certification, EPOCH Pi professionals are qualified to conduct organizational evaluations using the Barrett model and their range of measurement tools.
The Barrett Model is inspired by Abraham Maslow’s Hierarchy of Needs and identifies seven areas that comprise human motivations as it applies to understanding an organization’s employees, leaders and stakeholders. It has been tested for over two decades with thousands of organizations and offers a means for developing a deeper alignment of purpose across an organization.
EPOCH Pi’s co-founder, Bill Vogelgesang has been a Barrett Values Center certified professional since 2013.
Denison Certification
Through the Denison Certification, EPOCH Pi is able to provide clients with cultural assessment profiles that act as a map to better understand the cultural landscape of organizations. The profiles generated through Denison show where potential gaps exist and highlight best practices within an organization. This awareness gives all involved parties the opportunity to efficiently plan for how to bridge those gaps and how to smooth over areas of friction.
Through research, Denison has identified four key drivers of high performance—mission, adaptability, involvement and consistency—that indicate where to focus. These reports not only allow clients to troubleshoot during a transaction, but also to set a baseline for culture improvement over time.
EPOCH Pi co-founder Lynn Carpenter earned the Denison certification in 2017.
About EPOCH Pi
EPOCH Pi is a Certified B Corp and investment bank with over 25 years of meaningful experience advising in special situations to meet the needs of companies in periods of uncertainty and distress. Our services range from capital formation for growth companies to generating liquidity for existing shareholders. In every case, one of our criteria is the alignment of our client’s purpose and vision with those of the financial stakeholders. Learn more about us here or contact us to schedule a free call with one of our professionals.
