Cultural Differences in M&A's

In the last decade many companies on a global basis are 'going international' in order to become global players. The opening of global markets represented a key driver for international mergers and acquisitions. But with this “openness” M&A faced an unusual problem like “cultural differences”.

It is important for any deal that there be good rationale for integrating the businesses. Nevertheless, even if the rationale of a deal is terrific, it can still fall apart due to the cultural differences. Merging a U.S and a European company is actually appears to be a difficult process. The management styles are totally different and people have obviously different views on how to manage a global organization. Even if we take the English speaking countries together like U.K, USA, still their philosophies are so far apart and impossible to reconcile.
At first glance Culture may seem not an important factor because there were no such firms’ collapses upon the culture issue but still the role of culture in mergers and acquisitions (M&A) suggests that cultural differences can create major obstacles to achieving integration benefits.

Basically we know a lot about the financial issues of M&A’s but what do we know about the cultural issues of M&A’s? M&A’s are inherently culturally disruptive and the conflict is guaranteed when we take two already existing groups and smash them together.
According to a KPMG study, "83% of all mergers and acquisitions (M&As) failed to produce any benefit for the shareholders and over half actually destroyed value". Interviews of over 100 senior executives involved in these 700 deals over a two-year period revealed that the overwhelming cause for failure "is the people and the cultural differences".

Robert Gallagher gives an interesting overview which concerns the culture patterns that are inherent to M&A situation.
1) Employee concerns/paranoia about the uncertainty. The questions like: Will you lose your job ? Your bonus? Be assigned to a new boss who hates you? Etc.
2) The “Winners and loosers”- psychological effect
3) The “Cultural isolation effect”- despite areas of cultural alignment between the two management ranks, still there are certain areas to be disconnected that will create a specific tension and anxiety.

Sources:
http://openrangeanthropologist.com/2008/02/11/mergers-and-acquisitions-when-corporate-cultures-collide/
"Harvard Business Review on Mergers and Acquisitions" -Harvard Business School Press