3 Cultural Considerations Before an Acquisition Melding cultural elements speeds up the success of a new business entity.
By Tommy Petrogiannis Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
A company founder or chief executive officer (CEO) has a number of considerations to make when faced with a purchase offer and potential exit. Beyond both sides of the table needing to match up on dollars and valuations, it's important to consider what this purchase will mean for the future of the organization – will it grow or dismantle the corporate culture that's been built? Especially in the case of plans to merge the companies together, is there a cultural fit?
Corporate culture is more than the culmination of "best places to work" awards and internal lunch and learns, it's about an organization's values and how they translate into the way business is done. When considering the impact and fit of an acquisition, a CEO or founder should address three elements: the existence of synergies, the potential for complementary offerings and how this acquisition will improve the customer experience.
1. Synergies
Synergies isn't just a buzzword, it's an important consideration when looking at merging two corporate cultures. Establishing shared values is necessary to ensuring the relationship will survive and thrive. Do the companies share a vision or entrepreneurial spirit that will drive innovation? Will the acquisition offer access to new markets and customers bases on both sides of the deal? For an acquisition to be successful, it's imperative for everyone to be pulling in the same direction and synergies between company cultures can ensure that happens.
Related: How to Blend Company Cultures in a Merger
Sometimes, however, opening new markets through acquisitions requires such a drastic change in corporate thinking that a new business venture is doomed from the start. Consider Cisco, a dominant player in business communications, which acquired Pure Digital, maker of the once popular Flip Camera. Transitioning from an enterprise focus to a consumer focus proved impossible for Cisco and 11 short months and $590 million later, Cisco announced the shutdown of its Flip business unit.
2. Complementary offerings.
The second element to consider is whether the offerings and audiences are complementary. Is there a natural fit between the companies' products and services, like in the case of Facebook, a highly visual social platform, purchasing Instagram, a tool that enables simple yet enhanced image editing? Is there also a natural fit between the companies' audiences?
Just as the integration between Facebook and Instagram worked for one another's user bases, a misunderstanding of what customers want can have disastrous effects. eBay's takeover of Skype serves as a cautionary tale. In theory, offering sellers and buyers the opportunity to interact via video conferencing made sense, however as both companies learned, that functionality was not wanted and the initiative failed.
It's also important to understand the target audiences of companies involved in a merger. Yahoo! bought Tumblr, but has failed to take advantage of the latter's visual format. Recent news indicates that the parent company's culture wasn't a fit for the upstart. Throw in the demographic gaps between a typical Tumblr user and someone who visits Yahoo's homepage regularly, and you end up with a scenario where use of each other's platforms has little overlap.
Related: Why Company Culture Is More Important Than Ever
One recent acquisition that's been hugely successful in regards to taking advantage of customer demographics, has been PayPal's acquisition of Venmo. A "dinosaur" by most standards, PayPal saw an opportunity to get access to its next generation of users, millennials who had adopted Venmo for everything from paying a friend back for dinner to coordinating rent payments between roommates.
3. Consider the customer.
The final, perhaps most important cultural element a founder or CEO should consider when there's an offer on the table has to do with how each company treats its customers, and what the customer experience from the newly combined entity will offer. A positive example of this was Disney's acquisition of Pixar, which was fruitful for both companies, each of whom had their own separate fan base prior to the deal. Utilizing Pixar's penchant for storytelling and Disney's massive infrastructure, they produced several box office hits that were also critical successes – think "Frozen", "Toy Story 3" or "Wall-E".
With any acquisition, customers will feel a certain amount of fear, uncertainty and doubt. This can range from concerns like, "Will my relationship manager still be employed in a week?" through, "Does this mean the company will be hosting my data on a different server in another country?" It is critical that both companies spend time in the due diligence phase making sure that customer relationships are solid.
Related: What Company Culture Is Really About
Culture comes down to the way a company treats its customers. These customer relationships are likely a key reason an agreement is being put together in the first place. In a perfect marriage of companies, the goal is that customers gain access to something they didn't have before: economies of scale, new technology or enhanced servicing capabilities.
While there's no way to ensure a perfect transition when it comes to an acquisition, companies that focus on these elements tend to fare better than those that go full steam ahead with disregard for cultures and customers. It helps to ensure a focus on melding cultural elements out of the gate to speed up the success of a newly formed entity, and ensuring a successful transition in the customer's eye.
