How do you define success when buying a company? People buy companies for a number of reasons: to increase revenue growth, to acquire new customer accounts, or to gain access to special technologies or patents. These are all reasons that support the common goal: to grow the company. The goal is simple, but why do over 70% of mergers fail to improve share holder value?
When in the midst of a merger or acquisition, it’s easy to get caught up in the financial modeling and forget about or minimize culture. Most executives will admit that corporate and work culture is the most important thing to consider. Yet when faced with the great opportunity of the combined financial model, many will still push forward even when the corporate culture of the two companies don’t mesh. They convince themselves that it is something they can fix after the merger. That’s a beautiful story. But they are wrong. The data shows that 70% of mergers fail. The temptation of potential financial success combined with optimism whispers in our ears, “You can fix the people stuff later… It’s going to be ok…”
People forget that making mergers work takes great execution. And we live in a P2P (People To People) world. Your ability to execute your desired strategy beyond the merger or acquisition is what decides whether you will convert those financial model dreams to reality or if instead they convert into nightmares. And there are many more nightmares than there are success stories!
So, how do you avoid this pitfall?
Here’s how you validate if your core values and the proposed acquisition’s core values will mesh well together:
Know your own values. How do your core values drive the work habits and culture at your company? Understand how your values work. Go beyond the poster on the wall. Write down situations and tough decisions that were made and understand how they relate back your company’s core values.
Check stories about their tough decisions. Ask questions and seek to understand how they executed and made tough decisions. Do they line up with how your company makes decisions? Even if their core values had the same words as yours, the only way to verify is to examine the behavior under pressure and tough decision making.
Trust your gut. If your gut tells you that problems lie ahead, then stop. It takes discipline and courage not to go ahead with the merger especially when the financial vision seems so compelling.
When you are considering buying a company, don’t let the sweet siren sounds of the financial model seduce you. Have the discipline and courage to walk away when the core values and culture don’t seem to line up. You cannot have breakthrough execution without strong alignment of core values and culture. The gold may look great. But that’s what they say about fools gold, too. It looks great.