Is employee feedback a due diligence issue during M&A
Culture is the most common reason a merger or acquisition succeeds or fails. Much of the literature shows that most M&A activity doesn't deliver the benefits that it was intended to. This almost always comes down to an inability to integrate cultures.
Culture is critical for a merger to work. When two companies merge, or one acquires another, one of the cultures inevitably wins out. Even if you’re purchasing a company to increase market share or for other specific assets, the full value generally won’t be realized if the cultures are incompatible.
To address this, many organizations have started using employee feedback as part of their integration journey. Employee feedback can also be used as part of the due diligence process pre-deal to predict whether the merger or acquisition will work from a cultural perspective.
Feedback can inform and guide the integration process
Culture is always important, but it's particularly important when you're combining companies. While a company may try to preserve a standalone culture for innovation or R&D reasons, more typically cultures need to be integrated after a merger or acquisition. The success of the integration will largely be dependent on how well a company understands and manages cultural factors.
This is why employee feedback dramatically improves the success of an integration, and a merger and acquisition company survey is a great tool to use in collecting this feedback. Just about every larger company that does regular M&A uses employee feedback as a critical part of their integration process.
While larger companies may be comfortable with integrating new acquisitions, it’s typically the first time for the company being acquired. Employee feedback can really help smooth the communication process and make the transaction successful.
To do this successfully, it’s important to be pragmatic. Look at the culture of the company being acquired and use their employee feedback to understand how you can help them adapt to the acquiring company’s culture.
A great integration team knows they need to take people on a journey - from where they are to where they are going. Employee feedback can help them understand what things are working and what things aren't working. They can find out if people have the resources they need and feel supported, for example.
By looking at past feedback data, the integration team can also understand how decisions were made and communicated historically. By being explicit about cultural differences the integration team can get ahead of the conversation by understanding what will work and what may be more difficult. Suppose the target company was historically always transparent and upfront. In that case, the integration team needs to behave like that – be clear with people that the environment will be different.
Cultural compatibility can be identified in due diligence
Recently we’re seen more acquiring companies use employee feedback throughout their due diligence process. This is because they want to know about a company's culture and how the leadership team is perceived when deciding whether to buy it. For a public example, Salesforce looks at Glassdoor scores of potential targets. This information can help them decide whether to pursue a transaction.
It can be difficult to get good data prior to a transaction because people may not give honest feedback if they know they are about to be sold. Where we are seeing success is with people sharing feedback data that was collected earlier.
During the due diligence process, companies are fairly open – they look at who their customers are, win rates, loss rates, and a range of other information. So it makes sense to bring your cultural data to the table too.
If you want to do this, it’s essential to start with the idea that there's no such thing as a good or bad culture. Rather than judging the culture, focus on understanding what the actual culture of the target is – and how that is different from your own culture. If you don't understand your culture, it's impossible to understand the value of the culture you’re bringing in.
Companies that integrate well put in a lot of effort to help the acquired company adapt to a different environment. They understand that there’s a lot of value in considering the cultural implications of a merger or acquisition. This can make the difference between a successful investment and failure.