Identity & Cultural Due Diligence – an important part of the investment decision 

In the spring of 2023, the independent private equity firm Mentha invested in one of Denmark’s leading web and marketing agencies targeting small Danish businesses, Erhvervs Webdesign in Esbjerg. In January 2024, Erhvervs Webdesign acquired the renowned Aarhus-based company Aveo, in the same industry. The two companies shared a goal of creating a market-leading entity in web design and digital solutions for small and medium-sized enterprises.

We advised Mentha regarding both companies and conducted a comparative identity and cultural analysis of both businesses to support all parties in creating a successful buy-and-build integration into one joint platform. Following the conclusion of the analysis, our senior strategist Beate Kornfeld had a conversation with the responsible partner at Mentha, Lars Jensen, about the importance of identity and culture in acquisitions and integrations, as well as the value of conducting a DNA analysis in the Due Diligence phase.

IDna Group: Thank you, Lars, for sharing some of your thoughts and insights on our joint project. Identity and culture are severely underrepresented in most Due Diligence processes today. Why did you decide to take a different path and include a DNA analysis in your acquisition of Aveo for Erhvervs Webdesign?

Lars Jensen: It was inspired by several factors, including some of your previous work and our dialogue with Mentha in Benelux, who conducts many add-on acquisitions for the portfolio. They are very aware that acquisitions often fail due to cultural differences. In the Danish team, we already decided to conduct a DNA DD (DNA Due Diligence) when our Benelux team encouraged us. Historically, these things have often been based on gut feeling and intuition. But with these surveys, in-depth interviews, and workshops, you document it. It means a lot to us to have the findings formalized and documented. It opens up for a different type of dialogue. 
The companies we buy today are increasingly Human Businesses, often service companies based on human competencies and capacities. In those cases, an identity and cultural analysis is a form of Due Diligence of the core asset. In our processes, we usually interact with management. IDna Group’s analysis has given us a state of the union of the entire organization, which has been very valuable.

IDna Group: In many acquisitions, management assessments or internal employee satisfaction surveys are conducted as part of the process. What was the difference between those and our DNA assessment for you? 

Lars Jensen: Your analysis is not so much about “Am I, as an individual employee, happy or not” as it is about “who we are as a company?” And “how do we work together? What is our purpose? What is our goal? What do we value the most?”
The assessment has given us a completely different kind of state of the union. The combination of having a survey and 6-7 in-depth interviews at all levels of the organization provides a much better and more nuanced picture. It is a deeper analysis, and I like that. If there had been some major dysfunctionalities, you would have found them through your analysis. This provides a sense of security, especially since you, as an external partner, are conducting the analysis.

IDna Group: Lars, this project was the first time, as far as I know, that you included a DNA Due Diligence assessment. May I ask, how long have you been in the industry? 

Lars Jensen: I have been in the industry for 25 years. Understanding cultural differences in add-ons has long been a somewhat latent need. I don’t know if the other PE’s also conduct a similar analysis. But I can easily see it becoming a more integrated part of the Due Diligence in many cases going forward. It brings us back to the question, “What is a company today?” which is something completely different than it was 20 years ago.
This is a natural progression and development, just like we have seen with other topics such as Management Assessments. Previously, this was also more based on gut feelings. But now, we want some different perspectives on it. It’s the same here. It’s about pressure-testing the organization and digging deeper.

IDna Group: We are often asked when the right time to conduct such an analysis is. Would you conduct the DNA analysis as part of the Due Diligence again? 

Lars Jensen: Yes, we would prefer to conduct the DNA analysis in the Due Diligence phase. If something comes up, it would be nice not to have already bought the company. But it is not always possible. 
One argument to get the target company to allow access to the team was that they got a report that focussed purely on them. So regardless of whether the acquisition was happening or not, they would have gained value from the process for their business development. That was an important benefit. 
Aveo is quite advanced in their work with culture, so they could see the value of the analysis, both for them and also for building the platform. If you know that you have actively worked on company identity and culture and that this is one of your strengths, you will perceive it as an advantage that this is examined and highlighted in an acquisition process. 

IDna Group: Given your assumption that we would have identified dysfunctions through the analysis, how would you react if a target company said, “No, we do not want to have conducted an identity and cultural analysis in the Due Diligence phase?” Would you accept their reaction? 

Lars Jensen: No, I would think, why not? I would also want to know the background and their argument. It’s understandable if they say no in a competitive process. But as a starting point, it would be a yellow flag – an observation. I would ask myself, why wouldn’t they? You would never encounter someone saying you cannot conduct a legal Due Diligence. That would be a red flag. So, it is an interesting question.
When I started 25 years ago, almost no one conducted commercial Due Diligence with external advisors. They did it themselves. Today, in any process of a certain size, you hire a consultant who conducts proper commercial Due Diligence. So, the identity and cultural analysis could easily evolve into a regular part of the Due Diligence phase as well.

IDna Group: Many may think, yet another agenda in a tight phase – is that necessary? How would you prioritize? 

Lars Jensen: It depends a lot on the individual case. In our case, it was closer to need-to-have than nice-to-have. We could already see from the outside that we were looking to integrate two quite different companies. Plus, they are both companies that are people’s businesses. In other investment cases, it may be more in the nice-to-have category.

IDna Group: Who has benefited the most from the analysis? You as the owner, the platform company/buyer, or the acquired company? 

Lars Jensen: It was us at Mentha who sponsored the DNA analysis. We did that because we knew we would benefit greatly from it and wanted to exclude associated risks. 
Now that we have proceeded with the acquisition, the two companies greatly benefit from the results, as the analysis highlighted some elements that will be important to deal with in the integration process. Initially, however, it was an essential element in Mentha’s investment decision.

IDna Group’s DNA Due Diligence 

• 70-90% of M&As fail, 75% of those due to mismatches in identity and culture
• IDna Group’s DNA analysis is a comparative analysis between buyer and target, identifying similarities and differences in identity and culture. 
• Conducted as part of Due Diligence, the analysis enables a more informed investment decision and more realistic synergy expectations.
• Understanding the level of similarities and differences helps clarify and manage integration risks and increase the value creation relative to the purchase price.
• For the buyer and target company, the results present an important opportunity to address and manage identity and cultural differences in the integration process and to increase the ability to retain people and capabilities.