Clash of Clans

During the process of selling a business, at the stage where the seller is in exploratory discussions with potential buyers, one of the unlisted items on the agenda is how the two parties assess the cultural fit of the two businesses.  At this stage it’s usually confined to how well the buyer and seller get on.

Once things move on and a firm expression of interest is made, both parties will be examining cultural fit in much greater detail; almost a form of “soft” due diligence. Cultural fit is an important factor in an acquisition for small and large organisations.

When Unilever rejected an approach from Kraft Heinz on the basis of a lack of cultural fit. CEO Paul Polman knew the offer came from a team known for their aggressive approach to cost-cutting, which he felt didn’t fit with Unilever’s focus on sustainability.

Where cultures don’t fit, the fallout can be dreadful. The merger of Daimler and Chrysler lasted just 9 painful years as the dominant German culture conflicted with American worker and shareholder expectations. Within 2 years the combined business was projecting losses, plants were closing and Chrysler’s main shareholder Kirk Kerkorian had sued Daimler for $6 billion fraudulent misrepresentation of their intentions.

In privately owned companies cultural fit will be closely linked to the departing owner’s personality and vision.  As an acquisition is likely to result in a change of vision and/or strategy, both sides need to ensure they understand, and are comfortable with, the effects of any changes.

If the new management hopes to achieve synergies by merging teams, the teams need to be able to work together. If management hopes to retain key staff, their style and vision need to effectively motivate those individuals.  A clash of values can easily result in the newly merged business being unable to achieve the synergies they had planned and deliver the financial returns expected.

Assessing culture isn’t easy, but understanding the cultural differences and how to bridge them can be the difference between success and failure.

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