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Mergers and acquisitions (M&A) are often touted as a fast-track to growth, value, and market dominance. In 2023 alone, nearly 40,000 M&A deals were completed globally (Statista, 2024). Private equity firms have also remained active, with 665 minority-stake investments announced in 2023, marking a 4% increase from the previous year (WSJ, 2023). Yet, even with these numbers, the M&A landscape is fraught with risk.
According to Harvard Business Review, 70% to 90% of mergers and acquisitions fail. That’s an alarming statistic. But why do so many of these deals fall apart?
It comes down to one simple but often overlooked factor: culture.
Or as WorkHuman found "studies show that many—if not most—mergers are doomed to fail due to misaligned work cultures. The failures result in poor shareholder results, layoffs and in some cases a complete dissolution of the merger."
M&A: A Cultural Collision
At LOCAL - The Change Marketing Company - most of our current change projects stem from mergers or acquisitions. That’s no surprise. The joining of two companies impacts every person in both organizations, often affecting one side more than the other. On paper, a merger or acquisition may seem like the fastest way to create value, but in reality, it’s a deeply human process. People are at the heart of every business, and they are too often overlooked in M&A planning.
While companies conduct rigorous financial, technological, and operational due diligence before making a deal, cultural due diligence is rarely on the list. Did anyone stop to talk to the people? M&A deals are almost undoubtedly in trouble if cultural compatibility of the two companies or a clear people integration plan isn’t considered.
The ‘People Factor’ in M&A
M&A transactions aren’t just about increasing market share or gaining new customers; they are about creating shareholder value by achieving operational efficiencies post-merger. However, if the cultures of the merging companies don’t align, collaboration can become a nightmare. Teams struggle to work together, productivity plummets, and the whole process risks falling apart.
Poor communication compounds the issue, creating an environment where uncertainty thrives, and morale tanks. Employees feel lost, undervalued, and often, they leave—taking critical talent with them. In fact, termination rates tend to skyrocket during poorly executed M&As. This is costly. According to SHRM, the cost to replace an employee runs around 50%-60% of their salary, with overall costs ranging closer to 90%-200%.
It doesn’t have to be this way. Consider Cisco, a company that has been highly successful in integrating new businesses post-acquisition. Their success didn’t happen by accident. Cisco’s leadership understands that people aren’t just numbers on a spreadsheet; they are the driving force behind operational efficiency and shareholder value.
By prioritizing clear communication and employee engagement, Cisco has minimized talent loss and created a smooth integration process. When employees feel valued and included, they are far more likely to stay and contribute, which helps mitigate the risk of key talent departures post-merger.
Cultural Due Diligence: The Key to Successful Integration
Thorough due diligence isn’t just about examining financial records or assessing market position. It’s about fully understanding each company’s culture. Companies must take the time to create an integrated environment where both organizations can thrive. This involves assessing each other’s operational efficiencies, evaluating cultural compatibility, and understanding the potential risks.
When this cultural due diligence is done properly, it highlights areas where challenges might arise, such as managing differences in work style, communication, and employee expectations. By acknowledging these cultural challenges upfront, companies can avoid common pitfalls during the integration process.
Don’t treat integration as an afterthought. An effective integration plan should start even before negotiations begin. A clear vision for how the two companies will operate post-merger is essential for ensuring a seamless transition. This strategy helps to maintain employee morale, reduce frustration, and ultimately prevent the loss of critical talent. When employees from both sides understand the changes happening around them, they are more likely to stay engaged and productive.
A Billion-Dollar Investment, A Million-Dollar Loss
A company, by definition, is its people. Employees are often the largest component of a company’s operating budget, and if you’re making a billion-dollar investment but haven’t invested in understanding the people you depend on, you’re risking millions. The longer it takes to recover from a botched integration, the longer it takes to see a return on investment. Key talent will leave, and if you’re not careful, you might find yourself in a corporate disaster.
But look at the flip-side of this. What if change happened with employees, instead of to them? What if a fraction of the investment was allocated to bringing key talent along for the ride, even if it’s bumpy?
Cultural Due Diligence: The Fastest Path to ROI
This is where Change Marketing® comes in. We provide cultural due diligence for private equity, offering companies the insurance they need to avoid failure and the fastest path to ROI. By engaging with employees on both sides, understanding cultural dynamics, and crafting a comprehensive integration plan, we ensure that your M&A deal doesn’t just succeed on paper but thrives in reality.
M&A isn’t just about merging balance sheets—it’s about merging people, values, and vision. Without cultural due diligence, even the most promising deals are at risk of becoming costly mistakes.