Having successfully completed the sale of a company, it can be surprising to discover that post-acquisition the predicted strategic gains that could have materialised have been scuppered by nothing less than a culture clash, namely a profound failure to properly integrate the cultures of both businesses.

Here at EvolutionCBS, our highly experienced Directors have both ‘the scars’ and first-hand experience of seeing how a failure to recognise and respect these cultural differences can irreparably damage the value and potential in an otherwise hugely attractive corporate acquisition or investment.

More broadly, a classic and more public example is the £10bn acquisition of Lucent Technologies by Alcatel SA in 2006, which ultimately saw the two executives that led the deal quit the company. The integration was plagued by issues, including the appointment of a CEO who could not speak the local language, and a host of other challenges due to the attempt to instil an American acquirer’s corporate culture within a French/European business setting.

Clearly, getting the cultural fit right between both businesses can lead not only to a successful post-acquisition integration, but also to the longer-term achievement of strategic goals and objectives, such as significantly enhancing the financial performance across the combined operations.

For company owners choosing to sell, getting a solid understanding of the culture of the acquirer and what that will mean for your team is paramount. This extends not only to understanding management practices, but across the organisation, its workforce, and ultimately to how customer relationships are managed.

This was certainly evident in the 2022 sale of Sonnox Limited, the leading designer of innovative and high-quality audio processing Plug-Ins for professional and amateur audio engineers, to Focusrite plc (AIM: TUNE), the global music and audio products group supplying hardware and software used by professional and amateur musicians and the entertainment industry.

This deal, successfully completed by EvolutionCBS in December 2022, is a good example of where the leadership within both businesses had a clear understanding of not only the strategic gains from the synergies on offer (in this case the adoption of new technologies and access to scale, industry expertise and range of premium brands,) but also how the culture within both businesses could be integrated.

This meant early on in the transaction the leadership within Focusrite engaged with the key management within the Sonnox business, ensuring there was good communication and a mutual understanding of what the deal sought to achieve.

Tim Carroll, Chief Executive Officer of Focusrite commented: “This is our first acquisition in the audio software market, and it is an absolute pleasure to welcome Rod and his entire team to the Focusrite Group. Sonnox’s products are globally recognised as ‘best in class’, making them a natural fit in our stable, and we are all excited about the opportunities and possibilities that lie ahead with the collective expertise of our combined sales and R&D teams.”

For sellers another key piece of advice is simply to ‘follow your gut’ – if something doesn’t feel right about the cultural fit between both organisations then choose to look at the wider market and insist your adviser approaches companies (in the UK and overseas) that have both the required synergies and a culture that is likely to benefit your staff and customers.

This means in the preparation for sale you need to work out who the key ‘players’ are in a given market and ensuring your adviser works collaboratively with you to identify a well-researched group of potential acquirers, who you can approach discreetly and with complete confidentiality. To quote one EvolutionCBS client, “why would I sell to a corporation where the word on the street says they are upsetting and losing customers at a rate of knots?” The significantly different approaches to customer care would be an instant deal breaker.

During a PWC roundtable attended by representatives from Silicon Valley’s most innovative companies, 50% of participants cited a clash of corporate culture as one of the most common change management pain points that must be overcome to achieve a successful merger integration.

Post-deal one aspect of this pain for sellers is how to communicate the change of ownership / transition to staff. Whilst engaging with one or two of your key management is crucial to support the Due Diligence phase, engaging the wider workforce post-completion will help prepare the way for the cultural shift.

Your business’ approach to HR and ‘people matters’ will play a role in this area and help to reassure any concerned members of the workforce and for EvolutionCBS clients, guidance is given as to how best to communicate/position the sale or investment positively, so that staff can see the potential benefits that fresh investment and new leadership will bring to the business.

For sellers, preserving what’s best in the business is paramount to its future success, as well as understanding that things will inevitably change under new ownership. One top tip is to consider utilising a formal integration plan, rather than simply making a PR announcement and then hoping for the best.

We would typically expect to see evidence there will be a desire to understand the cultural challenges on both sides of the table – and to see tangible proof that the preferred acquirer/investor will take proactive steps to ensure a successful outcome. This will almost inevitably involve bringing key management on board at the appropriate time in the process and ensuring that any integration plans are effectively communicated to the workforce. In the majority of acquisitions, acquirers will give serious thought to how they anticipate the integration will take place and should work collaboratively with the seller to ensure they can successfully bring those plans to life.

A key aspect of the post-sale phase will be adhering to TUPE transfer obligations – the Transfer of Undertakings (Protection of Employment) regulations, which apply when an organisation, or part of it, is transferred from one employer to another.

According to gov.uk guidelines, TUPE transfer processes can involve the following:

• The old and new employers identify who is affected by the transfer.
• The old and new employers inform, and in some cases consult, employees who are affected by the transfer.
• The old employer provides the new employer with information about the employees who are transferring, for example their age and identity.
• The employees who are transferring transfer to the new employer along with their employment contracts and length of service.

By pursuing a deep understanding of the cultural challenges, engaging early on with key management, and communicating effectively to the workforce, both sellers and acquirers alike can ultimately capitalise on the value inherent in the acquisition and/or investment and ensure the delivery of longer-term success, growth, and profitability.

As a long-established premium provider of business sale advisory services to UK businesses, EvolutionCBS offers business owners a complimentary and confidential discussion on how their specific objectives could be met and provide pragmatic, practical advice on how to begin preparing both themselves and their businesses for future sale or investment.

EvolutionCBS works with owners of UK businesses in any sector, finding buyers from around the world through highly targeted research and supporting clients with dedicated Director-led teams, at every stage of their journey to a successful sale or investment. 

If you are an owner or shareholder of a business and would like a no-obligation consultation on the sale of all or part of your business, please email: info@evolutioncbs.co.uk or contact us on Tel: 0118 959 8224.