Just like each family has its own peculiar ways of doing things, companies do not fall far behind. The behaviours and beliefs which shape the way the company’s employees and management handle one another and interact with the outside environment (eg, with customers, authorities and media) would define its corporate culture. Each aspect of its operations be it the office setup, turnover, HR policies, customer service attitude, employees’ benefits, dress codes etc,. would reflect the identity of a company’s culture.
According to Paul Temple, Organizational Fit is “the match between administrative practices, cultural practices and personnel characteristics of the target and acquirer. It influences the ease with which two organizations can be integrated during implementation”. It is believed that the major reason for the failure of mergers and acquisitions is the clash between corporate cultures.
History has shown that where there is a conflict in the corporate culture of the companies involved, it can result in the breaking up of the business. The 1994 purchase of Snapple Beverage Co. by Quaker Oats is an example of a failed acquisition. Having purchased the former at a total cost of $1.7 billion, the former’s business was sold in less than 4 years at a massive loss of $1.4 billion. Post-mortem shows that the main reason of this failure was the conflict between the two companies’ corporate culture. Snapple was an eccentric, commercial-driven and distributor-focused. Quaker, on the other hand, was an extremely focused, mass-market working-approach kind of company.
In some m&a, problems with cultural integration can result in the loss of employees as they choose to leave the merged entity due to failure to assimilate into the culture of the acquiring company. Differences in the two companies’ pay scales, benefits and remuneration package may result unhappiness and jealousy between the employees who came from two different companies and now finding themselves working together but with differing remuneration package.
It is no wonder then that companies intending to embark into mergers and aquisitions first obtain m&a advisory from a competent consultant / advisor to review whether the target company is suitable, not just from a financial point of view, but also from a corporate culture point of view. Such an advisory may very well save the company millions, if not billions, from a failed merger and acquisition.
