Cultural Alignment Planning Drives M&A Success

August 29, 2023 9 mins

Cultural Alignment Planning Drives M&A Success

A strong people strategy and robust change management and communication approach will drive better cultural alignment during M&A deals — ultimately increasing the chance for success.

Key Takeaways

Companies succeed in M&A when they thoroughly understand their unique strengths and weaknesses.
Cultural alignment must also include a people strategy that assesses current workforce skills and existing gaps to drive future skills planning.
Developing and implementing a change management strategy and communication plan supports the engagement of leaders as they champion the desired culture.

Company culture is characterized by the values and practices of a business and its employees. Culture is powerful and unifying; a company can better attract and retain talent when its people feel aligned to the mission, purpose and business strategy of the organization.

However, businesses involved in mergers, acquisitions (M&A) and divestitures are often unprepared to align and combine company cultures. That's because culture is perceived as a less urgent or not as important an exercise, with organizations prioritizing areas like financial due diligence or key leadership retention strategies. But the absence of cultural alignment can lead to failed M&A deals if dealmaking parties cannot unify opposing organizational views on culture.

“By thoroughly understanding your company’s culture, a business leader can authentically share their insights and perspectives when representing their company in an M&A deal,” says Piotr Bednarczuk, a leader in Aon’s Talent Solutions practice who focuses on M&A integration.

There are culture-specific diagnostic tools, such as Aon’s culture analysis survey, that can help identify a company’s strengths and gaps in their people strategy. “Diagnostic tools can inform organizations on a couple important fronts,” says Bednarczuk. “These tools can assess how well leaders and employees align with the culture of the future organization; they can also tell how well current HR programs align with future culture.”

Three Areas that Drive Cultural Alignment

There are three main areas that drive cultural alignment during M&A, while also enhancing the future competitiveness and performance of the combined company. For each, there are several markers to evaluate how well an organization is doing.

1. Direction – What do we aim for in the deal and is there a clear direction for employees and managers? Markers to evaluate this include:

Work identity (e.g., Do employees feel a sense of purpose with their work?)
Work/life balance (e.g., Do managers encourage and enable employees to take time off?)
Professional challenges (e.g., Are personal and professional development opportunities readily available?)
Resilience (e.g., Is there a proactive approach to employee wellbeing?)

2. Relationships – How can we achieve the direction or shared vision together? Relevant markers for evaluating this include:

Accountability (e.g., Do leaders offer opportunities for upskilling?)
Transparency (e.g., Do employees report an atmosphere of trust?)
Collaboration (e.g., Is the customer at the forefront of decisions?)
Task allocation (e.g., Is there a vision for the long term rather than only short-term thinking?)

3. Environment – In what context do we perform? Consider these four areas:

Agility (e.g., Is moving between jobs and tasks encouraged?)
Risk aversion (e.g., Are issues anticipated and addressed before they become problems?)
Decision making (e.g., Are insights systematically gathered to fully understand customer needs?)
Leadership (e.g., Do leaders know when to change their approach to achieve the best possible outcome?)

The Building Blocks of a Strong People Strategy

Before any major assessment and work can begin on cultural integration during M&A, organizations need to address two additional key questions:

1. Are All Dealmaking Parties Aligned Before M&A?

Companies expecting or planning for M&A should strive to align different organizational cultures before an actual deal closes. Early planning of cultural alignment between the buyer and seller can minimize the number of challenges faced during the final stages of a deal. What’s more, addressing cultural alignment early on has been shown to increase the value of the deal. Consider that 65 percent of acquirers said cultural issues hampered the creation of value in their last deal, according to a PwC survey¹. There is plenty to discuss among leaders in the early stages. For example, do both organizations have the same outlook? How will differences and similarities impact integration?

2. Is Talent Secured to Ensure Future Readiness After M&A?

In the constantly evolving business landscape, employers need skilled and agile talent more than ever. An M&A deal requires both companies to assess the strengths and future skills gaps among their workforces. Talent assessment and checking workforce readiness can help companies navigate the complexities of M&A and emerge as stronger, more competitive entities. Companies that know how much upskilling and reskilling effort will be needed post-deal will be better prepared for integration and alignment efforts. A future skills framework can help companies map key functions or areas of priority within their organizations to make accurate and detailed talent assessments. Aon uses market intelligence to provide real-time insight into the skills that matter most to employers across a wide range of industries and regions.

Initiating Change Management and Communication in M&A

At its core, change management is most successful when:

The work focuses on helping individuals make changes.
It starts before the deal closes and continues after close.
It’s conducted in tandem with the workstream overseeing cultural alignment.

Before engaging in any change work, organizations should agree on their method and ensure there’s a team in place that knows how to employ it. “Look for a people-centric change approach that supports your people through the cultural transitions in tangible, enduring ways,” says Andrea Mindell, a partner in Aon’s Human Capital practice who specializes in change management. For example, Aon’s 4E change management framework helps organizations envision their future state, engage key stakeholders, enable a future-ready workforce and embed the change for long-term success.

In addition, companies that employ a change management approach at the beginning of a project — with a unified culture-change team — are best equipped to reach their desired culture as the companies combine. “At the same time leaders share their outlook for their organization’s culture, the change team can explore barriers to cultural alignment and strategize how to mitigate those risks,” says Mindell. “Those findings can then be used to develop and roll out a comprehensive communication, training and education campaign in the most effective way.

Indeed, a recent study² found 65 percent of companies reported their change effectiveness as “excellent” or “good” when change work was embedded at a project’s initiation. That’s nearly double the number of companies that ranked their change effectiveness as excellent or good when they began change work at a later stage, like implementation. And remember — this shouldn’t be thought of as a one-time exercise. Apply the principles of change management before, during and after close to speed up the change adoption, Mindell says.

Developing a World-Class Approach to People Strategy in M&A

The HR department of an energy company was going through an M&A deal and needed to develop a new operational model for HR-related transaction support. We helped them by providing guidance on best practices, developing toolkits and internal training. A major part of the toolkit was to integrate cultural assessment as soon as possible in the transaction process. In previous deals, the client encountered later challenges when the cultural assessment was not conducted. The toolkit included:

Cultural assessment based on publicly available data in the human capital due diligence process
Cultural interviews based on a common framework with leadership teams to assess current and future cultural traits before the deal closes
Detailed cultural interviews with the new leadership teams and definition of the common future state
A full employee cultural survey to monitor the achievement of the future state
Identify and examine cultural KPI’s based on employee survey data

Overall, the employee engagement remained consistent through the transaction, and the company retained all critical talent.

The Strength and Opportunity of a Unified Culture

If approached strategically and with open and honest communication, companies involved in M&A can make sustainable changes to their organization. Dealmaking presents both parties with a unique opportunity to combine the best cultural aspects of companies. Start by developing a unified people strategy framework that encompasses everything valuable to the combined business and workforce — from rewards, skills training and development to health, wellbeing and inclusion and diversity.

We also caution companies against spending time exclusively on diagnostics and strategy, especially when it is to the detriment of time spent on critical actions that will drive the desired culture. Align business programs and processes — such as performance management, total rewards and career development — to the desired culture.

For more insights on addressing the people aspects during M&A, please see our related articles:

¹ M&A Report: Creating value beyond the deal, PwC
² Prosci, Best Practices in Change Management – 12th Edition

Aon's Thought Leaders

Andrea Mindell
Partner, Talent Solutions, North America

Piotr Bednarczuk
Senior partner, Talent Solutions, UK

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.