The link between cultural due diligence and sociocultural post-merger integration management as a critical success factor in M&As

Abstract

Mergers and acquisitions (M&As) are today’s main vehicle for corporate growth. This is the case even though 66-75 per cent of M&As fail to create any shareholder value (McKinsey, 2010: 1). Some studies even stress that 40 per cent of M&As among large firms end in what is called a ‘total failure’, in which the acquiring companies are far from recovering their capital investments (Carleton and Lineberry, 2004: 9). The high failure rate and the immense costs related to the failure of M&As are growing concerns not only for shareholders but also for stakeholders, such as employees, suppliers and community residents. Hence, there is rising interest in finding the reasons for the numerous failures. While traditional research has attempted to explain M&A success and failure by focusing on strategic and financial factors, a growing number of studies focus on cultural aspects. Here, the research suggests that corporate and national cultures of the involved firms should be adequately identified during due diligence and integrated in the post-M&A phase (Stahl, Chua and Pablo, 2012). However, in reality, cultural fit between the acquiring and the target firm seems to be one of the most neglected areas of analysis prior to closing a deal (Chakravorty, 2012). In 2007, Robert Carleton, CEO of Vector Group, stated that ‘Cultural Due Diligence will rarely be a critical factor in whether to “do the deal” or not, but rather a significant factor in making the deal work’ (cited in Garbade, 2009: 14). Likewise, many researchers argue that the right post-merger integration (PMI) management is the decisive factor in M&A success (e.g. Pablo, 1994; Birkinshaw et al., 2000).