Do you know how many M&As fail due to cultural differences? Often when we hear of merger and acquisition (M&A) failures, we tend to think of big corporations, such as Amazon and Whole Foods, Word Perfect and Novell, and AOL and Time Warner. However, many M&A transactions also take place between small and medium-sized enterprises (SMEs), although we seldom hear of such failures in SMEs. It’s not because they don’t happen, but rather because they are not interesting or shocking enough to mention.

Recently, I came across an article where Michele Hamill, an experienced Chief Human Resources Officer at Jaggaer, a spend management solution, highlighted cultural incompatibility as a crucial factor that can have serious business implications. Hamill states that creating and implementing a strategy to successfully blend cultures is core to M&A success. Forcing one culture on another never works.

Organisations can avoid falling into a cultural chasm by factoring the people aspect into M&A criteria well before the deal is signed.

Business Aspects of M&A Transactions

The report “Emerging Europe M&A Report 2022-2023” by CMS suggests that SMEs will continue to play a significant role in M&A activity in Europe. However, these transactions can be complex as they involve various business aspects and cultural challenges. Some of the business aspects that companies typically focus on in this process are:

1. Financial due diligence: ensuring that they are paying a fair price for the acquisition and that the target company is financially stable. They need to analyse the target company’s financial statements, tax returns, contracts, and any other relevant documents.
2. Synergy analysis: identifying the areas where they can achieve synergies and cost savings through the acquisition. This could involve sharing resources, eliminating redundancies, or leveraging the target company’s customer base.
3. Integration planning: developing a plan for integrating the target company into their operations. This could include integrating IT systems, consolidating facilities, and restructuring teams.
4. Legal and regulatory compliance: ensuring that the acquisition complies with all relevant legal and regulatory requirements. This could include obtaining regulatory approvals and complying with employment and labor laws.

Cultural Challenges in SME M&A Transactions

In addition to these business aspects, there are also cultural challenges that SMEs must navigate in M&A transactions. Some of these challenges include:

1. Differences in organizational culture: managing the differences in organizational culture between the two companies. This could include differences in communication styles, decision-making processes, and leadership styles. Managing conflicts, aligning goals, and creating a shared vision for the future are some of the key challenges.
2. Employee morale: M&A transactions can create uncertainty and anxiety among employees, which can lead to decreased morale and productivity. Managing employee expectations and communicating clearly throughout the process is therefore one of the most vital elements, especially in organizations where talent retention is key.
3. Retaining key talent: identifying and retaining the key talent of the target company can require more than just maintaining a positive morale. This could, for example, involve offering retention bonuses or providing career development opportunities.

Conclusion

Overall, M&A transactions between SMEs require careful planning and execution to ensure success. It’s important for SMEs to focus on both the business aspects and the cultural challenges of the transaction to achieve a successful integration.

If you have ever participated in an SME M&A process, which of the above challenges appeared to be the most vital one? Please share your experiences below.

Picture credits: Photo by Hans-Peter Gauster on Unsplash