Valuation & Litigation Services Blog

Cultural Considerations

Accounting for Cultural Considerations in an Acquisition of an Operating Entity

Winning the acquisition game means many things to many people. For some, it’s acquiring a high-quality business at a low cost. For others, it’s all about reaping the rewards of healthy cash flows and greater economies of scale. Yet, being victorious in this game cannot occur without a strong cultural analysis and integration strategy.

Two businesses…two employee rosters…potentially multiple facilities in diverse geographies…different client bases…different processes…different policies…different cultures…

What could possibly go wrong?

Actually, quite a lot. When two entities join forces, be it through acquisition, combination, strategic partnership or other means, there must be proactive steps taken to merge cultures seamlessly.

There are books available on this subject. Suffice it to say, we could discuss this in great detail in multiple blog posts and still not do the topic justice. Therefore, we offer you a few choice high-level thoughts to ponder as you think through all phases of your acquisition strategy.

  • Understand your own culture. It’s little use asking others to adhere to your systems, policies and norms if you don’t completely understand them yourself. Take some time, gather your internal team leaders in a room, and hash it out.
  • Ensure that your culture is well defined and wholly embraced at the management level. Culture starts at the top and emanates downward. Without executives taking the lead on cultural norms and issues, there’s usually little support through the ranks.
  • To that end, try to define who drives the culture—in your firm, and the acquisition target. Observe the company before you buy; analyze the management—its style, its procedures, etc. See how employees interact with one another. Check out the company’s social media presence. Seek out former employees and get the lowdown from them. You’ll get some good feedback, some not-so-good feedback, but either way, you’ll be doing the necessary due diligence.
  • Conduct internal research. How will your current employees accept the new employees into your culture? And how will success be measured? To help in this regard, there are many proven human resource tools, including but not limited to HR assimilation practices, behavioral assessments, trainings, retreats and more.

There are many more cultural considerations involved in acquiring a business, but these points should get the discussion started, and hopefully guide you down the path to a seamless integration.

A Case Study in Merging Corporate Cultures

To illustrate some of the points above, consider the following example of how Skoda Minotti’s human resources professionals helped two companies integrate cultural elements into a seamless whole.

Workplace Challenge:

Companies A and B came together. Neither company as very large (20 people combined), but everyone involved wanted the transition to be smooth.

No one quite knew what to expect, but both sides had a basic idea of each company’s activities and cultures. The leaders met, but they spent little time working together.

What did they do to ensure a successful transition with little lost productivity?

Reflection:

The most important components of a merger or acquisition are the people involved. We wanted to help ensure that the staff at both companies felt a sense of security in their jobs and had a clear idea of what their new roles would be. We also deemed it essential that they get to know each other and recognize the benefits of the combined companies from the standpoint of their people and products.

Solutions:

  • We worked with HR to develop the roles and responsibilities of each staff member and the organizational chart for the new company. We made these decisions before bringing the teams together.
  • We met with each employee to explain his or her new role and to describe the team they were joining. We made sure to specify that a team meeting would be scheduled to identify roles and responsibilities, introduce team members to one another and talk about the combined strengths of this new team.
  • We asked the leaders of the two companies to come together and share some of their perspectives on the combination. We made sure to include time for them to speak at our team meeting.
  • We used our HR team to facilitate the team meeting. In particular, we used a personality / communication tool called The Birkman Method® to reveal the following:
    • The communication / personality styles of each employee – Birkman Usual, Stress, Needs and Interests
    • What strengths each person brings to the table – based on their Birkman Usual Style and Interests
    • How these respective strengths make each company an asset to the other – i.e., what one company has, the other one may need. This eliminated blind spots on the Birkman “map” by creating a team with employees in each of the four colors.
    • The Birkman needs of each employee and who meets those needs. This is used to help build a support system within a team of people. The basis of the support system stems from pairing people who naturally find it easy to communicate with one another.
    • How we could pair staff with their performance coach based on Birkman needs. By using this strategy, coaches and employees have an easier time communicating with each other because this is each of their natural style of communication.

As part of the session, we explained to employees that revealing this information now increased their accountability to each other. This, in turn, helped to foster mutual respect for the strengths of everyone as part of a new team.

We also determined that this work would help ensure that the team becomes productive out of the gate because team members each received a deeper insight into the people with whom they would be working.

We felt it was our responsibility to increase the comfort level of each person, reveal the unknown about roles, uncover the culture of the new company, and create respect on personal levels.

We left the team meeting by determining next steps for the staff. We also provided each team member with a personalized report and keepsake that reminded them of the success of the meeting. Finally, we connected them with their performance coach for a one-on-one session.

Do you have questions about accounting for cultural considerations in acquisitions, or developing a winning M+A strategy? Please contact Ken Haffey, CPA, CVA, CGMA, CFP at 440-449-6800, email Ken or visit http://vlas.skodaminotti.com/valuation/merger-and-acquisition-valuation.

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