by Cristian Anastasiu, Excendio Advisors

It is commonly accepted knowledge in the industry that company culture plays an important role in mergers & acquisitions. Whether you are acquiring a company, or your company is being acquired, understanding how company culture will impact both the integration of an acquired business and the valuation of a business that is on the market is crucial to a successful transaction.

For many businesses, human capital is a very important, sometimes the most important, asset of the business. As a result, if the cultures of the purchaser and the acquired company do not fit, an acquirer may end up paying more for a company than it is ultimately worth. Similarly, if you are selling a business and your company culture appears to be difficult to integrate, it can negatively impact the amount an acquirer will pay for your company. Additionally, if your payout is based on the performance of your company after it is purchased, such as an earnout, a difficult integration process can decrease the amount you ultimately receive for the business.

In this article we will explore 3 key areas:

  1. Factors to measure company culture
  2. Analyze company cultures
  3. Making a merger work for you

Factors to Measure Company Culture

While there is a lot that can be said for gut feel when evaluating a company’s culture, there are other, less subjective, factors that can be used for measurement purposes.

These include quantitative metrics such as:

  • Sales commission plan – Is it focused on aggressively winning new customers vs maintaining and growing the existing customer base? Is it top line or profitability focused? Flexible / individualized or rigid / structured? Is the commission plan encouraging teamwork or personal performance?
  • Employee benefits – When a company offers extensive employee benefits to its employees it can indicate an employee-centered culture, often found in companies where employee morale and loyalty is crucial to the performance of the business.
  • Hiring/ termination practices? Are multiple interviews with a large group of employees required before making a hiring decision? Is it a group or an individual decision-making process?
  • Employee tenure – a short tenure can be an indicator of a transactional, hire and fire culture, or at the other extreme, a long tenure can indicate a culture where longevity with the company and loyalty are more important than recent performance.
  • Customer size – does the customer base consist mainly of global enterprises? or rather medium or small businesses? Any specific vertical industry focus? Companies tend to develop their processes and as a result their culture based on the type of customers they serve.
  • Customer churn – is it easier for the company to win new customers rather than retain old ones? This could be a sign of a transactional rather than relationship- based culture.
  • Are the company’s results and specifically the financial statements like the P&L shared internally with the management or maybe with all employees? How often? How much?
  • Founders background – the founders’ professional background (technical/ sales/ operations/ financial) and their personality and values impact the company culture.
  • Does the company have one or more shareholders? Does that aspect foster a more open, team-based culture and how does the personality of each owner – if there are several shareholders – impact the culture overall?
  • Location – (East Coast/ Midwest/ West Coast, cross border, etc.).
  • Have either the buyer or seller done acquisitions in the past and what were the lessons learned?

Many buyers believe, when assessing the culture of a potential acquisition, that if there is good chemistry with the owner of a small company (less than 50 employees), that will translate to a good cultural fit with the whole company, because the employees were handpicked by the owner and are very much alike culturally. But is that true for a larger company where the culture has evolved over time and is not directly and uniquely linked to the owner?

How are all these points different – if at all – for an IT services company?

Other things to look for when comparing company cultures:

  • Decision making approach: Is it concentrated at the top, or more distributed?
  • Dress code: Formal, business casual, a mix?
  • Work from home (WFH) policy: If the business is one that does not require employees to be physically present (retail, manufacturing, etc.) are they allowed to WFH either entirely or partially?
  • Communication policy: Frequent? Rare? Single channel? Multiple channels?
  • Sales-driven or technology-driven?
  • Employee Salary Review: Are these done annually? Are they done in line with a performance review or kept separate?
  • Performance Reviews: Are they formal or informal? Are they done on a set schedule, as needed, as requested? Is the input into the evaluation done by one person, or is there a 360 process?
  • Team Building Practices & side perks: Are there regular team building activities within departments or company-wide?  What about recognition for a job well done?  Are there rewards tied to employee performance that goes above and beyond?
  • Management Communication to employees; are employees used to quarterly meetings at one company and the other has few to no formal communication?

Analyzing Company Culture

When evaluating the culture of a company, there are a number of questions to ask to home in on what makes the business tick and how that might impact an acquisition. These include:

  • What elements of a company’s culture are critical when it comes to a fit between buyer and seller?
  • Are there any elements in a company’s culture that make a buyer or a seller respectively a better candidate for successful M&A?
  • Are there elements in a company’s culture that can be changed after the acquisition, to fit with the other party?
  • Is a buyer capable of changing elements of its own culture if the goal of the acquisition is for the buyer to evolve (the buyer acquires a company with a different business model, such as a reseller acquiring an MSP, with the goal of accelerating the buyer’s transformation)?
  • How can a buyer – or seller – determine if the other party to the transaction is a good cultural fit before and during due diligence as opposed to after the deal closed and the damage is done?

 Making a Merger Work for You

While there are certainly elements of a merger that can be unpredictable, focusing on the things you can control at your own company is the best way to prepare for an acquisition or merger. This includes building a culture that is robust, open and flexible enough to successfully integrate with an acquirer or acquisitions.

Tips for making a merger work and avoiding post-merger indigestion include:

  • The M&A integration process starts at the very first meeting between the buyer and the seller, not when the transaction closed and has been announced.
  • Analyze and understand the cultural differences from the beginning of the relationship and plan accordingly. How critical are the differences? Are these cultural elements that can be changed / tolerated / will enhance the new company or will they lead to conflict?
  • Emphasize communication: Utilize multiple channels to stress common goals of the merged entity and to provide avenues for team member comments and feedback.
  • Solicit feedback from team members of both companies. This can help post-merger performance by sourcing input from a wide variety of people. Showing staff members of both companies that their input is valued also helps bolster morale.
  • Provide cross functional collaboration opportunities: Giving teams from different departments and groups a chance to work together can help boost morale throughout the merger organization.
  • Be flexible: If the additional post-merger plan does not appear to be achieving its objectives, it may be time to try a different approach. Diagnose the problems and take steps to improve communication, collaboration, departmental responsibilities, system integration, or whatever the problem is. Sometimes a minor adjustment in one or more of these areas can significantly improve post-merger performance.
  • Preserve characteristic cultural traits while emphasizing commonality.
  • Make changes early: If changes are necessary after the acquisition (layoffs, processes and systems changes) make them as early and as much as possible at once and communicate/ explain the reasoning behind them.

Examples of successful or failed M&A transactions where culture was critical (to the success or failure) include:

  • Cisco and Crescendo: This was the first of Cisco’s 218 acquisitions as of the end of 2021. As told many years later by Cisco’s executive VP at that time, John Chambers, the acquisition was initiated by a customer. In the early 90’s, Cisco was a one product company – routers. Boeing, a major customer, told Cisco that they are planning a significant buildup of their network, which will require both routers and switches and their preference and intention is to buy both technologies from one vendor. If Cisco would offer switches in addition to routers, Cisco would be their choice. Cisco wasted no time, approached Crescendo, a leading vendor of switching technology, and shortly thereafter completed the acquisition. The acquisition was executed despite internal resistance at Cisco, where some believed that routers were superior to switches and networks could be designed with routers only, no switches (also known as the “not invented here” syndrome). The acquisition was a major success because of the highly complementary technologies and products, but mostly because of the cultural fit: two Silicon Valley innovative and customer focused companies. In addition, Cisco and Crescendo planned and executed the integration flawlessly. Several of Crescendo’s senior managers took on key leadership positions with Cisco and played a critical role in the company’s success in the next two decades. The acquisition solidified Cisco’s dominance in the enterprise networking market in the mid 90’s and is the first chapter in Cisco’s highly acclaimed M&A textbook. More than 25 years later, Chambers and some of Crescendo’s leaders started a new venture, Pensando Systems, that was recently successfully sold to AMD. It is all about people.
  • AOL and Time Warner: Intended to bring together old and new media in a powerful combination, the different cultures of the two companies never gelled and the merger was a disaster.
  • Hewlett Packard and Compaq: This merger of two computer companies with well-known products resulted in falling sales. The merger was said to have failed mainly due to the difficulty in integrating two markedly different cultures, with HP’s engineering-focused team conflicting with the sales-driven culture found at Compaq and the contrasting leadership styles each approach generated.
  • Sprint and Nextel: Sprint’s 2005 merger with competitor Nextel was designed to help it compete with industry goliaths Verizon and AT&T. However, just three years later Sprint had written down 80% of Nextel’s value. The failure was said to stem from a culture clash between Sprint’s more formal bureaucratic culture and Nextel’s more freewheeling approach.


The importance of company culture to successfully making a merger work cannot be stressed enough. As the examples above demonstrate, when cultures clash, the result can be highly detrimental to the goal of achieving synergy between acquirer and acquiree. Does this mean that companies with two different cultures should never merge? Not necessarily, however, it does mean that any company contemplating a merger should be cognizant of the importance of meshing company cultures. However, this is done, whether by team-building activities, incentives in the form of recognition or financial or other rewards, the key is that planning for it should start even before the merger closes if possible.

Understanding how company cultures play into the success or failure of M&A events is crucial to their success. Hopefully this article has provided some insight into how to analyze company culture in order to take the steps necessary to engineer a successful acquisition.