Culture is critical to M&A success

08 September 2017

The not-for-profit (NFP) and community services sector is currently rife with merger and acquisition (M&A) activity. As a result of recent regulatory changes and the necessities that come with scale, NFPs are looking to partner up with other organisations in order to deliver the best outcome for their clients and customers.

Recently I co-presented with McCullough Robertson Partner Aaron Dahl, at a Community Service Industry Alliance (CSIA) workshop focusing on 'Mergers & Acquisitions - a strategy for today's times.' The session looked at what the sector is currently doing in this space and how to best approach in order to strengthen an organisation into the future. Industry leaders were informed on the difficulties involved in M&A, and what can be done to enable both parties to see the benefits as early as possible, particularly the human aspects.

Culture Clash

I spoke about the typical M&A journey when it comes to the People Advisory element. Essentially, as soon as it's announced that two businesses are going to merge, the aggregate value of each organisation goes down. This is inevitable, and is only resolved when the M&A process has been followed and the two different companies are successfully integrated. At that point, each business will start to see the benefits that were originally outlined as being the reason for the M&A in the first place.

The biggest challenge to successful integration is culture. While the transaction itself is relatively straightforward in that there's a set process to follow, aligning the workforce can present difficulties. Two businesses may have similar values and vision, but if they have very different managerial styles, for instance, it doesn't bode well for the long term future of the enterprise.

Due diligence is not just about the financials

It is important to invest in enough due diligence before the transaction to find out whether it should go ahead. This should involve determining and identifying exactly what you want from the M&A, and ensuring that this is achievable within the context of the two businesses coming together. This could cover a range of issues, for instance contracts, systems, workforce, capabilities and certain behaviours of each company. This sort of due diligence doesn't need to be expensive, and is often absorbed in the M&A costs.

Essential to successful integration is that the boards are willing to merge. The early stages of an M&A are a courting process in which each party wants to know more about the other, and the chair of each board should be the first to start asking the difficult questions, both of the other business and their own. Self-reflection is key. Each business wants to look as attractive a prospect as possible, and that means looking at where an organisation can improve and which issues need to be solved before merging.

M&A’s are often difficult because they inevitably involve each organisation losing some of its identity. One way to overcome this is by shifting the focus of the M&A. Organisations should consider only merging the businesses' support services and efficiencies, while keeping the brands separate.

Current state of M&A’s in the NFP sector

BDO has years of experience working with businesses to bring about successful M&As. With the National Disability Insurance Scheme (NDIS) changing the face of the market, People Advisory is becoming more involved in the transactions we are seeing. Our national People Advisory team are helping NFP’s across the country with due diligence and encouraging them to understand what needs to be done to align their cultures and values for successful outcomes.

We specially help them drill down all of the People Advisory aspects of the merger, including:

  1. Workforce planning
  2. Capability
  3. Remuneration
  4. Legacy agreements
  5. Inherent workforce risks
  6. Systems, processes and technology.

BDO help can help at any stage of an M&A, including after the transaction has taken place, when each business is still looking to realise the benefits outlined before the process.