‘Success in M&A? It’s all about the people!'

Blog 3 - Mergers & Acquisitions – Making Due Diligence People Focused

The due diligence process is a time consuming and costly process when acquiring a company. Expensive external advisors are brought in. Often the focus is on the financial, legal, tax and operational aspects of an organisation. Long lists of? documents are requested and endless lists of questions are being asked.

And while this is very important, focusing only on assets, contracts and balance sheets leaves the crucial question of leadership and culture unexplored.

Scope due diligence driven by integration plan

Employees create results, and whether this is successful is often dependent on who leads them. I love the quote from Warren buffet: “Do not search for what is hidden, look at who is playing hide and seek.”

What do you need to know in order to make the integration a success and to achieve the strategic objectives? When you ask this question, the leadership topic, organisation and people will be high on the list. Why not?

What I heard: It is not on the standard due diligence checklist. It is not measurable. It is complicated. It is vague. It is soft. We know the culture. We met the leaders. We reviewed their CVs.

In my ideal world, the integration plan determines the scope of the due diligence.?

Exploring people related aspects is not easy

Making decisions based on what is in a spreadsheet is easier than asking yourself if the current leaders are capable of managing a complex integration. And defining culture is even more intangible. But ignoring the leadership or culture question is not the solution. Another reason to avoid soft factors is based on the misconception that soft factors cannot be measured. There are wonderful methods to compare organisational cultures, to sharply measure team effectiveness and to map out possible qualities, overlaps and gaps of the leadership framework. This will provide a solid base for the integration plan.

Key questions to explore

So what will be the key questions that we would like to investigate:

• What are the most important qualities of the target company to achieve the objectives that we have defined for this proposed acquisition?
• How can we nurture and grow these qualities of the target company in the best possible way?
• What kind of leadership does this target company need in order to achieve its full potential under our ownership?
• Who would fit this profile for leadership requirements to make the integration of this target company a success?
• How does the culture of the target company fit with our company?
• With the current target company culture, can we make the integration into our company a success?
• What are the key values for the company culture in the combination?
• How do we shape our integration plan to accommodate the culture of this target company and work towards the desire combined culture?
• What communication plan would be most effective with this target company culture?

Taking into account the outcomes of the people focused due diligence early in the process, you create an important foundation for a smooth integration and a new organisation that is also viable in the long term. In short, an investment well spent!

We are happy to explore this further with you in your next M&A process......