Cultural Due Diligence Essential In M&A's

Growth opportunities wear many disguises. Sometimes it looks organic; sometimes it looks like a merger or acquisition; and sometimes it looks like a combination of all three. With each disguise comes a different set of challenges.

Specifically, with mergers and acquisitions, the biggest challenge is that the core values and cultures of the two organizations differ. Owners go through an in-depth financial due diligence process during a buy/sell in order to determine the market value of the franchise. However, it is rare, if ever, that any cultural due diligence is completed to determine the cultural compatibility. Without cultural compatibility, the integration of the new location can be very challenging. The cultural differences have much more emotional impact than rational on how they impact the mingling of the cultures. That's important because the culture of the business influences how the employees behave; and, in turn, that affects decision making.

Every organization has its own set of guiding principles and values. Integrating a new business, team, or entity into your current one creates a "blended family." When people re-marry and blend their families and homes, turf wars ensue, at least in the beginning, as everyone gets used to the new normal.

One of the largest issues with the acquisition and integration of the new location will be communication. With people and business tightly intertwined, the employees will experience emotional culture shock as they try to determine what it means for them. There will also be a level of operational culture shock as business platforms and procedures come together. Therefore, communicating early and often in each of these areas can help decrease confusion, as well as remove fear.

Emotional Culture Shock

It is a mistake to assume that personnel concerns will not be an issue in any merger or acquisition. When teams come together there is an immediate fear due to the unknown. There is also the emotional conflict on each side with perceptions of the other as "the enemy" or "the reason everything is changing." Bringing your merged teams together and having open discussions helps to minimize the emotional stress that will be present. Establish communication early on in the process to:

• Clearly identify perceived benefits of the acquisition, to both sides;
• Manage expectations regarding career and growth opportunities for all employees;
• Discuss what will change and what will stay the same in the new environment;
• Emphasize the benefits of the additional location, which may include improved efficiencies, improved service for customers;
• Talk openly about what you do, how you do it, and why you do it.

Operational Culture Shock

Operationally, there will also be challenges presented. The new store may not operate on the same platforms or use the same processes. To minimize the operational "cultural" shock, ensure that all business processes are made as employee-friendly as possible, meaning those following the processes can accomplish the task with a user manual. These processes include:

• Sales and CRM systems;
• Accounting software and practices;
• Human resource benefits and policies;
• Overall franchise policies and procedures.

Addressing the people and processes is an important step in integrating the new store or brand into your culture. It is one tactic that helps ensure your business goals are not undermined due to a lack of compatibility with teams.

A key strategy in bringing the teams together is the development of a "transition team." Building a team with representatives from both the existing and the new location, helps to build trust and confidence. A transition team made up of leaders and high performers from both organizations and coming from various departments also gives employees the confidence of knowing who they can turn to for help, thus resolving minor conflicts.

The more you are able to minimize conflict and build trust, the faster you are able to overcome emotional and organizational shock hurdles. This simple approach will help you reach the business goals and objectives that you were excited about when bringing in that new location or brand, which in turn drives growth and builds the value of your business.

Dan Schneider, M.A. is a partner with The Rawls Group, a national business succession planning firm. For more information, visit www.seekingsuccession.com or email info@rawlsgroup.com.