M&A Success Starts Here: The Power of Cultural Due Diligence

Mergers and acquisitions (M&A) are often touted as strategic power moves—opportunities to expand markets, acquire new talent, or eliminate competition. But behind the spreadsheets, synergies, and legal contracts lies an often-overlooked factor that can make or break a deal: culture.

Studies show that cultural misalignment contributes to around 30% of failed mergers and acquisitions. While financial and operational due diligence are standard practice, cultural due diligence often gets sidelined, leaving leaders blindsided by post-deal challenges.

So, how do you navigate this critical yet intangible element? It starts with understanding what culture means and asking the right questions.

The Role of Cultural Due Diligence

Culture, at its core, is about shared values, beliefs, and behaviors. During an M&A, the cultural dynamics of two organizations come into play. If these dynamics clash, the friction can undermine everything from employee morale to customer retention. That’s why cultural due diligence is as important as analyzing financial statements.

When conducting a culture audit, it’s critical to dig deep. Ask questions that uncover not just surface-level practices but the underlying values and assumptions.

For example:

• How would employees describe the company to an outsider?
• What types of people thrive—or struggle—in this organization?
• What practices or traditions are considered essential to its identity?

One particularly powerful question is: What is something about your culture you wouldn’t want to lose in an acquisition? This gets to the heart of what makes the organization tick and what employees fear might be at risk in a merger.

A Tale of Two Songs

Cultural misalignment isn’t just theoretical—it has real consequences. Take this example from a past engagement: An acquiring company and an acquired company were struggling to integrate five years after the deal closed. To get to the root of the issue, we brought both management teams together for a day-long session.

We started with a creative exercise: each team had to choose a song that represented their experience of the acquisition. The acquiring team chose David Bowie’s Rebel Rebel, symbolizing their view of the acquired team as rebellious and resistant to change. The acquired team, on the other hand, selected Johnny Cash’s One Piece at a Time, a song about building a car out of mismatched parts. Their message: “You’ve turned us into a Frankenstein’s monster of mismatched parts bolted onto a conglomerate.”

This exercise uncovered deeper frustrations. The acquiring company wanted the acquired team to conform, while the acquired team felt their unique strengths had been ignored. Addressing these cultural disconnects was the first step toward better integration.

Key Red Flags to Watch For

Cultural misalignment often reveals itself through subtle signals. Here are a few red flags to watch for during the due diligence process:

• Mixed Messaging: If different leaders give conflicting answers about the company’s culture or vision, there may be underlying tensions.
• Turnover Trends: High turnover before an acquisition could signal deeper issues with employee engagement or leadership.
• Value Gaps: Are the company’s stated values reflected in its actions? A disconnect here is a warning sign of cultural inconsistency.

The Path to Cultural Integration

Successfully navigating culture in M&A requires a deliberate and proactive approach. Here are some best practices:

• Understand Your Own Culture First: Before you assess another organization’s culture, make sure you have a clear understanding of your own. What are your core values? What defines success in your organization?
• Conduct Cross-Company Assessments: Tools like surveys, interviews, or frameworks such as the Competing Values Framework can help compare the two cultures and identify areas of alignment or conflict.
• Plan for Integration Early: Cultural integration shouldn’t wait until the deal is done. Start crafting a communication and integration plan during the due diligence phase. Be clear about what will change and what will stay the same.
• Leverage Both Cultures’ Strengths: Instead of forcing one culture to dominate, look for ways to blend the best of both. What practices or values from the acquired company could enhance the larger organization?

Why Culture is Non-Negotiable

Ignoring culture during an M&A is like ignoring the foundation of a house—it may look fine at first, but cracks will eventually appear. Culture shapes how employees work, how leaders make decisions, and how customers perceive the organization. When cultural alignment is treated as a priority, M&A transitions are smoother, and the chances of long-term success increase.

Ultimately, understanding and addressing culture isn’t just about avoiding conflict—it’s about unlocking the potential of what two organizations can achieve together. So, the next time you’re involved in an M&A, remember: Success starts with culture.

*This blog is part of a three-part series on organizational culture and its impact on business success. While this installment delves into the importance of cultural due diligence in M&A, the other blogs explore aligning values to prevent integration challenges and frameworks for fostering strong, adaptable cultures. Together, they provide a comprehensive roadmap for navigating and leveraging culture to achieve organizational goals. 

To learn more about cultural due diligence and how precedes the success of M&A's, please contact our organizational development specialists.

Article Contributed by Gary Kustis, Ph.D.