Cultural Integration Issues Costly for M&A Deals

September 29, 2008 ( - Cultural integration issues in mergers and acquisitions (M&A) transactions have direct financial implications on deal value, according to the results of Mercer's Cultural Integration Snapshot Survey.

The survey, which included 119 organizations from across the Americas and Europe, found that 60% of respondents reported that the success of recent M&A transactions was negatively impacted by cultural integration issues, according to a press release.  

Asked to estimate the financial impact of cultural integration issues, 44% of respondents from the Americas reported that between $1 million and $5 million was lost or not realized in a significant transaction their organization had recently undertaken, with nearly one quarter estimating that it was over $5 million. Among European organizations, 43% of respondents reported that between €1 and €5 million was lost or not realized in a recent significant transaction, with nearly 30% estimating that it was over €5 million.    

“According to several of our clients, the impact of cultural integration can be much greater when the synergies lost, as a result of cultural misalignments over time, are factored in.   We are working with one organization that estimated that it’s failure to quickly manage conflicting cultures early on “cost” them hundreds of millions of dollars of lost revenue over a three year period,” said Elisa Hukins, the leader for cultural integration in Mercer’s M&A global consulting business, in the press release.

Although 72% of survey respondents cited culture as an important contributor to creating value in M&A transactions, many are not well prepared to effectively manage cultural integration issues.   Nearly one quarter of companies are moving towards developing a more formal cultural integration process; however, 68% still do not regularly use a systematic approach to identify gaps between organizational cultures.

Another challenge identified by survey respondents was a low level of executive engagement in leading M&A-related cultural change.    Only 37% of organizations surveyed said they had invested to some extent in developing managers with the expertise to understand and lead cultural change – 28% indicated that they have invested very little or not at all. While HR professionals are viewed as being key culture change champions, only a quarter of senior executives are reported as co-leaders of cultural integration efforts in their organizations.    

On the positive side, according to Hukins, “over half [of respondents] indicated that they plan to invest more heavily to improve the management of cultural issues in deals in the short term.”

The survey was conducted among 119 companies across more than 17 industry groups, with 76% of respondents headquartered in the U.S. and 19% in Europe.   Information on obtaining a full copy of the survey report is available via email at GLOBALM& .