Mixed Mergers Spell Trouble
Companies with markedly different cultures set themselves up for failure when they try to merge. Pro or con?
Pro: Due Diligence on Cultural Differences Is Overlooked
Experts may argue that some can beat the odds, but the truth is that most mergers fail. A Businessweek study showed that 61 percent of buyers destroyed shareholder wealth. And there is no doubt that culture is a culprit.
Successfully merging is dependent on analysis of the context and culture of the company being acquired. Context—which includes business performance and incorporates traditional due diligence of reviewing financial records, labor contracts, etc.—informs what changes are needed in the new company and how quickly they should be made.
Analyzing culture is more difficult, and most companies simply do not know how to manage this type of due diligence. Leaders must get a pulse on the company’s culture prior to the merger by examining its behavior, relationships, attitudes, values, and general environment. This provides critical insight into the organization’s readiness for change, which translates into how quickly the leader of the new company can implement changes without facing backlash and causing irreparable damage.
AMN Healthcare Services has completed 11 acquisitions over the past 25 years. Some worked better than others. Its chief executive, Susan Salka, explained to me that the least successful acquisitions generally ran into trouble because the acquired company’s management philosophies and values didn’t aligned with those of AMN. She describes these as the "basic pillars of what drives" behavior and results. It’s hard to move forward when those aren’t aligned.
In theory, leaders can overcome the challenges of integrating companies where culture differences run rampant. But in practice, most won’t.
Con: Dramatically Different Cultures Can Co-Exist
Sure, culture is important, and companies should enter into mergers and acquisitions with their eyes wide open. But dramatic differences in culture don’t necessarily spell disaster. According to Sue Cartwright and Carey Cooper, authors of Managing Mergers and Acquisitions (Butterworth-Heineman), it depends on what kind of "marriage arrangement" you’re looking for. If you want an "open marriage," where each partner operates independently, dramatically different cultures can co-exist. Look at the portfolio of companies that Johnson & Johnson has acquired over the years: Personal products company Neutrogena certainly has a different culture from that of stent maker Cordis.
Similarly, a "respectful marriage" can bring together companies with different cultures that want to learn from each other and build an even better culture over time. For example, even though they were in the same industry, Price Waterhouse and Coopers & Lybrand had very different cultures when they merged in 1998. By learning from each other, they eventually created today’s PricewaterhouseCoopers, which operates differently from the way either of the legacy companies did.
Different cultures become problematic with a "traditional marriage," where one of the partners is forced to adopt the traditions and culture of the other. The issue here is not just cultural difference—but willingness to change. Chrysler, for example, was not willing to become like Daimler, and their 1998 merger was indeed a disaster. In contrast, many companies acquired by General Electric and Cisco Systems willingly change their cultures and become highly successful.
So do "mixed mergers" spell trouble? Only if you want them to.