The impact of culture on the post-merger integration (PMI)

“We should have thought more carefully about the acquisition due to cultural differences.”

Identity and culture are the forgotten factors in M&A, despite several studies clearly stating the importance of culture and identity for successful PMIs (Post-Merger Integrations). Bain’s M&A Report 2023 shows that 75% of acquirers struggle with cultural issues that require serious interventions. PwC’s “Creating Value Beyond the Deal” report finds that 100% of companies who significantly lost value relative to purchase price state that cultural issues hampered the realisation of value in this deal. “Put culture at the heart of your deal”, states PwC in their report. Maybe this recommendation has not sufficiently reached all CEOs in Denmark?

To understand the implications of culture and identity on the acquisition journey of a Danish company, we have talked to Betina Nygaard, former CEO and owner of Scanmarket. In her role, Betina has sold her company to Verdane, which initiated a growth journey through add-on acquisitions. She acquired and integrated two companies before Scanmarket was sold to Unit4. 

In a conversation with our Senior Strategist, Beate Kornfeld, Betina reflected on her journey and shared experiences from two PMI processes and the role identity and culture played in them. 

IDna Group: “Betina, when you started your acquisition journey, were you, as the CEO, aware of the impact of culture and identity on your acquisition’s success? “

Betina: No, I was not. I realised the impact first after our first acquisition. At the time of our first integration process, we did a rebranding process, as we felt that our logo and visual identity no longer represented who we were as a company. The agency we partnered with asked us whether we had a definition of the elements that defined us. That started a process in which we looked inside and defined our vision, mission and our guiding principles. Through this process, we became much more aware of our culture and what was important to us in our company. And that helped us to understand how big the differences in culture between us and the recently acquired company actually were. Looking back, we should have thought more carefully about the acquisition due to cultural differences. Unfortunately, we could not realise the planned synergies. – At least not in the planned timeframe. We had difficulties getting parts of the target company to cooperate with us, so as a result, access to the acquired technology and the crucial know-how was challenging. 

IDna Group: “We often get the question of how to express the monetary effect of not considering differences in identity and culture in acquisitions. What is your perspective, based on your experience?”

Betina: In every acquisition, you define a business case. If you don’t consider cultural fit or the lack of it, you can start calculating the business case all over again. You have no idea whether you will be able to realise the planned synergies or not. Another factor is the loss of talent that you will experience in failed integrations. The moment you start losing employees from the acquired company, you often have crucial know-how leaving the company. It will take you years and a lot of money to replace that know-how. 

IDna Group: “When you acquired the second company, what did you do differently based on your learnings?”

Betina: When we did the second acquisition, we were much more aware of our own culture and identity and understood the importance of the integration processes. I hired a People & Culture Manager who was connected to the acquisition from the start and was also part of the integration process afterwards. During the Due Diligence, we had dedicated interviews with the management, middle management, and employees to assess their culture and to understand the differences between the two cultures and identities. 

After my first interviews, I had a good idea that we would align culturally. Still, I needed someone with specific competencies to understand the differences between the two cultures in depth and to design the integration process accordingly. Having a People and Culture Manager at my side was a great support. 

IDna Group: “What is your recommendation to other CEOs who stand before an acquisition journey? When and how should culture be integrated into the process?” 

Betina: I recommend including culture as a separate track in the Due Diligence. It could also be part of the HR track, but usually, this track focuses much more on other topics like insurance, salary levels and benefits. 

While assessing the culture of the target company, I recommend talking to the middle management. They have a good understanding of their company’s culture, and you need them on board if you want the integration to succeed. 

During the entire process, it is crucial to have someone internally who owns the cultural track and has enough stars on the shoulder to make decisions and whom leadership listens to. External support can facilitate and increase knowledge, but you cannot do the process without internal ownership and competencies. And finally, open communication. Be as open and clear as you can, as soon as you can. 

IDna Group: “Mapping the two cultures and understanding the differences is a valuable step. But then, the two cultures must combine into one future culture and one understanding of a shared identity. How did you consider the identified cultural differences in your second acquisition?” 

Betina: First, you need to understand the size of the differences before finding a solution. Then, you should be curious to find out what elements the target company has that could be beneficial for the mother company. 

Addressing the differences opens the possibility of talking and negotiating. I believe that the shared future culture can only be a result of a negotiation. Is everything up for discussion? No. But it is crucial that you, as the CEO, stake the negotiation ground upfront and define the playing field for the discussion. Without open communication and negotiation, you can’t make the employees of the target company buy into the fact that they will need to change some parts. They need to understand why they should change.

IDna Group: “Based on your own experience, you have started the podcast M&A360 to give other CEOs the tools and insights that you were lacking when you started the acquisition journey with Scanmarket. Who else do you see in the driving seat to help other CEOs?” 

Betina: I expect that investment companies will become better at understanding how to integrate culture into acquisition and integration processes. If I had those challenges, I am sure other portfolio companies also have similar challenges. Investment companies could help their CEOs tremendously by providing a framework that is based on experiences and that gets refined with every add-on acquisition. 

IDna Group: Betina, we thank you for your time.

IDna Group’s recommendations for assessing identity and culture pre-closing:

• Be aware of your own organisational identity and culture before starting your acquisition journey and screening for targets.
• Be aware that different departments in global companies can have sub-identities and sub-cultures. The DNA Due Diligence in M&As should not only happen on the corporate level but on the department/team level, where the integration will take place. 
• Don’t ask yourself why a target company fits your identity and culture. Ask why it doesn’t fit to enable yourself to discover the actual differences.
• Don’t look at the defined values. Be curious about how they are understood and lived in the organisation. There is often a big difference between the aspiration and what is true. 
• It is not enough to assess organisational identity and culture by talking to the management. You also need access to middle management and preferably employees to understand the company’s true identity.
• Consider investing in a DNA Due Diligence. Undiscovered differences in organisational identity and culture can potentially cost you much more after closing, as they can hamper or challenge the business case for the acquisition.  

About Betina Nygaard 
Betina Nygaard acts today as a board member with expertise in M&A, PMI, growth, and internationalisation. She has been the CEO and founder of software company Scanmarket A/S for 15 years before selling the company to a private equity buyer in 2019 and again to an industrial buyer in 2022. During the private equity ownership, Betina headed two company acquisitions and integration processes.