Last month In MidMarket Talk, What Dealmakers Need to Know: Cultural Due Diligence (CDD) made the case that CDD should be an integral part of making deals successful and sustainable. A quick review of the harsh reality is that most merger or acquisition deals fail. The reasons why are obvious.

 

Internationally the record of accomplishment of M&A activity results is quite poor. Multiple studies analyzing the last 30 to 50 years of M&A activity have documented a business success rate of less than 30%. One McKinsey study of 30 years of M&A activity concluded that 77% (and some studies show this at 90%) of the acquisitions failed to meet their intended business objective, over half failed to ever recover the documented costs of the acquisition and roughly a third were later divested or completely shut down. Any company's own data, while maybe better than international averages, may still show a less than desirable success rate.

 

Another series of follow-on studies identified organizational culture clash as the primary reason for failure in over half of the thousands of acquisition failures studied. We define "culture clash" as disagreements between people in the merged organizations concerning how to go about engaging in and managing the business. These types of clashes consume increasing amounts of energy and time to get things done and turn the focus of significant parts of the organization from "doing" the business to arguing about how it should or should not be done. Internal issues/arguments consume ever more resource leaving less and less focused upon the customer and performing the work. (Vector Group, 2017)

• What is important
• What should be measured
• How to make decisions
• How to supervise
• How to communicate
• Who is and/or how to best serve, the customer