Table of contents
2 Pre-Merger cultural due diligence
2.1 Assessing organizational culture
2.2 Cultural due diligence Pre-Merger process
2.2.1 Planning of the M&A transaction
2.2.2 Getting in contact with the target organization
2.2.3 Concrete negotiations
3 Post- merger integration
3.1 Reasons for post- merger integration failures
3.2 Strategic and Operative Approach to post-merger integration
3.2.1 Integration Management
3.2.3 Cultural Integration
4 Reasons for ASG’s success in the M&A market
5 Recommendations for ASG
Over the past several decades, the global economy has become increasingly intertwined as emerging markets continue to grow. Trade barriers have been broken by free trade agreements and the creation of the World Trade Organization while advancements in technology have allowed for the instantaneous transmission of information across the world. In order to expand operations, companies are increasingly looking towards mergers and acquisitions to grow operations internationally. Over the past 10 years, there have been over 251,000 global merger and acquisition transactions valued at $23 trillion US dollars (Exhibit A). While the recent downturn in the global economy has seen transactions decline from a peak of over $4 trillion dollars in 2007 to $2.19 trillion in 2010, M&A activity is expected to rebound given high cash levels and strong fundamental support for M&A, stronger growth levels in emerging markets and a desire for international acquisitions in order to “mitigate the risks of expanding in the global market.”
While there is a strong demand to expand in the global market and technological advancements have allowed for ease of evaluating a potential M&A opportunity, there remains a wide cultural gap that one must understand and bridge in order to be successful. In this paper, we describe the phases of the merger process and show important factors that must be examined. We will not only focus on the cultural dimensions of Hofstede and other tools learned in class but also analyse the importance of premerger cultural due diligence and the post-merger integration process.
Our extensive research on the post and pre-merger process is complemented by our examination of ASG, a company that has conducted numerous acquisitions over the past 20 years. The company is a software company founded in 1986. Our examination of ASG shows the ability of successfully evaluating the culture of the organization in the pre-merger process and furthermore, ASG’s ability to successfully integrate the acquisition.
The M&A process can be divided into two phases: The pre-merger and the post-merger phase. While the pre-merger phase deals with a due diligence check before performing an M&A transaction, the post-merger phase is rather dealing with the integration process after the closing. The following illustration will give the reader an overview of the process scheme and the tasks to be performed.
Process of Due Diligence and Post-Merger Integration:
illustration not visible in this excerpt
Source: Own illustration.
2 Pre-Merger cultural due diligence
Due diligence can generally be described as “a process of enquiry and investigation made by a prospective purchaser in order to confirm that it is buying what it thinks it is buying.” (Howson, 2003) When evaluating an M&A opportunity, firms often focus on various different types of due diligence checks such as financial or legal due diligence. While both are very important in assessing the feasibility and success of a merger or acquisition, research shows that cultural issues are the single most common reason why mergers or acquisition fails to meet synergy expectations. Therefore it is important to assess the organizational culture of a company before completing a merger or an acquisition.
A cultural due diligence check can be described as “a window on prevention. It permits the process for identifying the strengths and weaknesses that both parties bring to the table." (Schein, 2001) The first step in conducting a cultural due diligence check is to discover the corporate culture of the potential target. Robbins (1997) describes culture as a “system of shared meaning held by members that distinguishes the organization from other organizations.” The culture of an organization determines how its members (employees) make decisions, deal with clients, competitors and colleagues, and it determines the outcome of an organization over time. It is apparent that culture plays an important role in the achieving expected results from an M&A transaction. Therefore it is necessary to look closely at the different characteristics and dimensions of the culture in a target company in order to evaluate the success of an M&A transaction.
Organizational culture can be divided into three fundamental layers of cultural visibility– observable artefacts, espoused values and basic underlying assumptions (Exhibit B). Artefacts can be observed easily. They are visible and salient such as a company’s logo or a certain corporate language. Furthermore it includes formalities and attitudes, for example what gestures and emotions are appropriate, how to interact with colleagues and superiors, as well as stories and myths telling. Espoused values are norms, beliefs and philosophies within a company which are only partly visible. These values describe goals and core values of the firm, e.g. financial goals or customer service orientation. The goals can be discovered through analysing the company’s vision and mission statements and guide the company in dealing with internal and external challenges. Through setting goals, a company establishes expectations for the employees as well as managers in terms of interaction with each other and all other facets of daily operations. The third dimension, basic underlying assumptions, are the most difficult to identify. Basic underlying assumptions are mostly unstated philosophies on how to carry out activities, how to behave and to interact socially. These assumptions are more or less instincts and not reflected by the employees. It is therefore very difficult to analyse and make conclusions from these assumptions.
2.1 Assessing organizational culture
A cultural due diligence check should assess multiple dimensions which capture the characteristics of an organization’s culture. Basically, there are seven “key” characteristics which in aggregate describe an organization’s culture explained in Exhibit C.
Assessing the characteristics of a target, or one’s own company, is a cornerstone of a successful due diligence check. This process helps managers to understand the behavioural patterns and impacts of the culture on decision making. For example, team-oriented organizations might set team-oriented goals and reward collective contributions while others may be more focused on individual performance. Firms also have different assumptions on resource sharing while others have different expectations on cooperation between employees.
When assessing the characteristics of an organization, it is also essential to analyse the strength and stability of a culture over time. Following the completion of an M&A transaction, the company will ideally develop a new organizational culture in order to integrate the target firm’s culture with the current company culture. The integration process for companies with distinct and strong corporate cultures could be significantly more difficult, if members of the organization strongly identify with the company and highly agree with the way how “things are done”.
 Bloomberg (data compiled through data from banks)
 Market Observe- CNBC Interview with Robert Parker
 Howson, P. (2003), p. 4.
 Larsson, R. and Finkelstein, S. (1999), p. 1-26.
 Piccolo, R. and Bardes, M. (2011), pp. 223.
 Piccolo, R. and Bardes, M. (2011), pp. 224.
 Piccolo, R. and Bardes, M. (2011), pp. 230.
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- Merger and Acquisitions M&A Due Diligence Post-Merger Integration Cultural Integration Cultural Due Diligence Due Diligence Check