Generally, due diligence in M&A involves the strategic and financial assessment. But assessing and managing culture or people is also crucial. Cultural due diligence is able to affect the success in M&A deals. In fact, the ability to manage people or culture is more important than the strategic factors.
Unfortunately, this aspect of due diligence is still an emerging thought. Many still don’t know how to do this due diligence aspect. The process to conduct this due diligence is more than just comparing the mission statement or articulated values of every company.
Challenges in Undergoing Cultural Due Diligence
Conducting due diligence in cultural aspects is not simple. The culture of organization can be reflected in what is practiced and what is valued. On the surface, those components might be aligned. However, each organization’s culture can be totally different.
Even after the integration, the differences can impact the collective ability of the organization in order to deliver the value to employees, customers, and stakeholders. Both the actions and values of each company are important.
Conducting due diligence in cultural aspects means you must look at what is done by each organization to value and how the value is lived out at the organization level.
The Importance of Conducting Cultural Due Diligence
As organizations, individuals, and teams, people form habits. Those habits align with things they value. The habits can create different impacts. The habit is actually a process to make specific decisions. For example, there are two companies about to make M&A deals but have different habits.
Company A values workplace flexibility and allows the employees to work from home. This means the workspace rent can be pressed. But Company B values the workplace with face to face contact. Both companies have different cultures.
If you try to blend the different cultures, clashes in decision making and understanding may happen. It is crucial to identify and manage the differences ahead of time.
Considerations for Due Diligence in Cultural Aspect
In order to get the culture of a company in a deeper look, especially during the process of M&A, you need to read the cultural clues of each company. The first thing you need to observe is the rituals and rites of the company, such as the activities and celebrations they value.
Also, consider the heroes or the people in the company who are recognized as the ones who personify the values in truest form. Another thing to consider is the networks and communities of that company. Consider the social interaction and outlets between others.
Some other things to consider are the norms and codes in the organization as well as the history of the company and the other stories that may embody the culture of the organization.
The Importance of Culture in M&A Deals
Every deal of M&A is unique. Always pay attention to things that are glossed over and what is taken as a gift. Those things usually are the heaviest weight of culture or the most significant things to the employees. If you can understand the culture, you can be successful in making the M&A deal.