With the trend towards consolidation affecting a range of industries, UK merger and acquisition (M&A) activity is only set to increase. Often undertaken with the aim of market growth or diversification and to maximise profit margins, M&As can offer significant business benefits when managed effectively. However, when bringing two or more companies together, it is essential for organisations to not lose sight of the importance of cultural integration and adopt a holistic approach to assessing any possible knock-on impacts on the business. The culture of the parties impacted by the M&A activity defines and shapes how they think and behave during the change process.

Cultural consistency can be forgotten

Often, mergers are undertaken for justifiable commercial reasons, for example, the desire to enhance competitive edge, grow market share or drive profitability and efficiencies. Alternatively, acquisitions may present an opportunity to grow a business’ expertise by acquiring smaller, specialist teams or a shift into a new or connected market sector. However, in the effort to focus on these areas, the issue of culture integration can all too easily be forgotten, which may lead to significant problems further down the line, undermining the objectives of the M&A.

Consistency is key

The types of issues experienced by organisations when looking to create a consistent company culture will depend partly on whether they are undertaking a merger or an acquisition. During a merger, where two distinct companies are being brought together, often through mutual agreement, business leaders will face a decision around the future cultures to adopt and will have to ensure that this becomes consistent across both organisations. On the other hand, during an acquisition, companies may aim to safeguard customer loyalty by retaining the brand and values of the business or may subsume the business into the culture of the acquiring company. In either scenario, managing the culture change reduces the likely impact on employees and enhances the overall success of the strategy.

One of the most significant risks posed by a failure to consider culture during M&A activity is the direct impact on workforce performance and wellbeing. Unless time is invested in ensuring employees are on board and engaged in the process of change, productivity levels may drop, making it more difficult for the business to achieve its strategic targets. Similarly, not taking steps to ensure a unified, consistent approach may result in individuals feeling alienated from the organisation, leading to a high employee turnover rate soon after a merger or acquisition is completed. This in turn could have unforeseen financial implications if, for example, a new recruitment drive is required to address skills gaps across the organisation or greater investment in marketing is needed to attract new talent.

Evaluate the current culture in detail

When looking to streamline the culture integration process, a crucial first step for businesses is to identify their ideal target culture. Once this is identified, the business should then conduct appropriate due diligence. This should firstly involve evaluating the current culture in place and undertaking a business health-check across key areas such as employees’ levels of motivation and commitment to the existing brand. A thorough and holistic impact assessment should then be undertaken to determine how cultural changes will affect the business in four key areas; people, processes, systems and infrastructure. For example, if flexible working, which is becoming increasingly common, forms part of the business’ ideal target culture, careful thought will need to be given to any investment in technology and support for staff required to achieve this, as well as any training and new processes that will need to be put in place.

Management of change, supported by a Portfolio Management Office (PMO), can also help businesses to address some of the complexity resulting from mergers and acquisitions. Providing stakeholders with increased visibility across change initiatives can help business leaders to pick up on any HR issues quickly, allowing them to be addressed before they have an impact on the day-to-day running of the organisation. Similarly, by helping to drive effective communication between different areas of the business, change management can help to ensure that individuals have a clear understanding of any changes to working practices, facilitating a smooth transition.

Further reading on mergers

• To sell or not to sell: State of the market for UK mergers and acquisitions
• Mergers and acquisitions: Creating the perfect formula for business success
• The state of play for UK mergers and acquisitions

 A buffer period is key

A common pitfall for organisations is not allowing sufficient time for changes to company culture to become embedded following a merger or acquisition; in reality, this can take up to 12 months. As such, failing to provide a buffer period for this stabilisation process could ultimately make the difference between business success and failure. Additionally, seeking quality external advice at the earliest possible opportunity will help to ensure that organisations get the process of cultural change right the first time, rather than risking mistakes which may prove costly in the long-term.

With growth in M&As expected to continue for the foreseeable future, it will be more important than ever for UK businesses involved in this activity to give careful thought to the issue of culture integration and undertake a holistic assessment of any potential impacts on the organisation. By doing so, business leaders can help to navigate cultural changes smoothly, protecting employee well-being and retention while maximising their chances of M&A success.

Peter Marsden is a principal consultant and Debora Marras is a project co-ordinator at business change consultancy Entec Si.

Watch the video on mergers below