The Importance of Culture in Mergers and Acquisitions

An organization’s culture—or the common set of behaviors, mindsets, and beliefs that shape how people work and interact—is a driving force for its success. In companies with strong cultures, employees at all levels understand the business’s mission and purpose, how decisions are made, how performance is measured, and individuals’ roles in achieving critical organizational objectives.

It’s always surprising, then, when culture is overlooked in discussions about M&A. Typically, the focus is, primarily and understandably, on the mechanics of the transaction rather than the potential for cultural transformation. Considering both in parallel is critical, however—and, as our research demonstrates, actively managing cultural factors is important for protecting the value of a deal.

Indeed, according to a 2023 McKinsey Global Survey on M&A capabilities, lack of cultural fit and friction between the acquiring company and the target are the most common reasons why integrations don’t meet expectations for value creation. Roles may be conflated, processes may become confusing, top talent may exit as a result, performance may suffer, and the intended value from M&A may be at risk (value may even be destroyed).

When merging organizations get the culture piece right, however, they are more than 40 percent more likely than their peers to meet or surpass cost synergy targets, and up to 70 percent more likely to meet or surpass revenue targets. Separate McKinsey research points to organizational health as a critical factor in the success of large acquisitions. In particular, three behaviors that are typically found in healthy organizations are also strongly correlated with the creation of deal value: talent management, external (customer) focus, and internal discipline. All three can serve as deal accelerators rather than integration obstacles.

Based on our decades of work helping companies in a range of industries and geographies manage their dealmaking, we’ve identified three important actions executives can take to ensure that they don’t treat culture as a “second day” factor—that is, they should take the time to systematically diagnose potential cultural issues, set cultural priorities, and establish and communicate a clear cultural transformation plan.

We’ve outlined these findings in previous articles, but as markets begin to see an increase in M&A, it may be helpful for executives to revisit these principles. Here, we do just that and suggest a few ways that business leaders can actively integrate culture into their M&A conversations.

Diagnose how the work gets done

Right at the outset of the merger process—as early as the due diligence phase—it’s critical for leaders to understand how work gets done in both the acquiring and target companies. How do people make decisions, for instance? How does the organization motivate people, and what systems do they have in place to hold people accountable?

To answer these questions, leaders shouldn’t rely on gut instinct. Instead, they can deploy a range of diagnostics aimed at collecting perspectives from employees in both organizations—including employee surveys, management interviews, and employee focus groups. Each of these diagnostics has its advantages and disadvantages, so the best approach is for leaders to use a combination of all three, keeping in mind that the terminology used across these tools must be consistent. In this way, leaders can gain a clear picture of cultural similarities, potential points of friction, and opportunities to build common norms and a common language about the way that people work.

Other sources of critical information that leaders can gather even before a deal is signed include interactions between deal teams and with the target company’s leaders, as well as conversations with customers and suppliers of the target company. More recently, leaders have been using generative AI and other technologies to collect public data about workforce sizes, employee satisfaction scores, and so on, and to build up their understanding of the cultural aspects of each of the organizations involved in a deal.

Again, the most important point in all this fact-finding, according to executives we’ve spoken with, is to establish an objective set of cultural criteria at the very start of the planning process: Doing so “would have eliminated some of the misperceptions about both company cultures,” one airline executive explained, “and we could have had conversations based on facts rather than just anecdotes or beliefs.”

Set cultural priorities

With data about existing company cultures in hand, leaders can take the next step and set cultural priorities related to the transaction. Specifically, they will need to develop a point of view on how various aspects of culture can help them maximize value and, relatedly, a perspective on how to manage differences in ways of working. McKinsey research suggests common points of friction can include decision-making and communication styles, approaches to innovation and collaboration, management of customer relationships, and differences in operational and financial management.

Some key questions for leadership in both the acquiring company and the target company are: Which of these cultural elements are part of our “special sauce”? What behaviors or management practices are needed for the new company to succeed? And what “from–to” shifts are required? Based on the answers to those questions, leaders may need to redefine roles and performance targets. They may want to reinforce behavioral changes by introducing new cultural artifacts—for instance, new brand colors, a reframed business mission, or a new statement of values for the merged entity. The top team will need to serve as a role model for behavioral changes. And, to sustain employee engagement in any change efforts, senior leaders will need to tell a compelling and consistent change story, personalizing it with their own experiences.

More tactically, once leaders have identified desired behaviors, they can develop change plans that are structured around cultural themes, translated into concrete initiatives, and supported by key performance indicators (KPIs). If a company wants to build an agile and collaborative sales force, for instance, leaders might set several cultural themes: cross-selling, working together, making decisions quickly, and managing performance. For each of these themes, leaders could launch initiatives devoted to, say, clarifying decision rights, training salespeople about the escalation process for bids, and refining certain governance and operating processes. Similarly, leaders could establish metrics by which to mark and monitor performance: time to respond to bids, customer satisfaction scores, employee satisfaction scores, and so on.

Taken together, these themes and their constituent initiatives and KPIs can encourage the desired behaviors and promote the overall goals of the merger.

Hard-wire and support cultural change

Once leaders have identified key cultural themes and initiatives, they can take steps to hard-wire these elements of culture into the new company’s operating model and daily practices. If leaders aim to “create a culture of respect,” for instance, that point must be reflected in company policies and value statements. “Evidence of respectful behavior” may be part of the criteria for individual performance reviews and compensation calculations. And at the end of every governance meeting, participants might openly reflect on how respected they felt by others during the conversation. Cascading and reinforcing the desired cultural changes in this way can help companies quickly establish the new normal.

Signature initiatives involving the top team—for instance, changing the company dress code to match that of the acquired company—can help underline its commitment and create a sense of shared endeavor.

Of course, formal communication structures are not always the best way to influence an organization. As part of the change effort, the top team should identify and empower change agents and influencers across the acquiring and target companies, giving them the training and skills they need to be effective in the role.

Senior leaders should also track the implementation of themes and initiatives with the same rigor they use for financial targets. That means developing clear milestones, monitoring them centrally, tracking them closely, and taking corrective action quickly when needed.

As our research and experience suggest, culture is a critical (if underestimated) factor in the success of any merger or acquisition. It must be a central topic on any agenda in which deals are being discussed, whether leaders are talking about proposed transactions or active integrations and transformation through M&A. Otherwise, as the numbers demonstrate, organizations risk leaving significant opportunities for value creation and growth on the table.

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