In recent years, cross-border mergers and acquisitions (M&As) have become more common in the global marketplace, at least if you follow mergers and acquisitions news.
Cross-border M&As allow organizations to access new markets, enable cost efficiencies thanks to leveraging foreign resources, and create synergies.
However, they also bring some challenges. Combining different corporate and national cultures can make integration a not-so-smooth process.
To overcome these challenges, companies engage in a Cultural Due Diligence (CDD) process. The process aims to close the gap between different cultures for smooth integration.
In this guide, we’ll help you understand what cultural due diligence is, why it’s important, and what to consider.
What Is Cultural Due Diligence (CDD)?
Cultural Due Diligence (CDD) is a business process whose objective is to identify the key cultural differences and similarities of the organizations involved in mergers or acquisitions.
The goal here is to get a coherent image of the intercultural challenges of the M&A to spot intercultural risks and opportunities. To have a detailed understanding of these challenges and get guidance on mitigating them, head over to: https://mnacommunity.com/
Alternatively, keep reading to find out the impact cultural due diligence has on the companies’ integration and post-M&A business.
Importance of Cultural Due Diligence and Things to Consider
When going through a culture due diligence, several factors must be kept in mind to ensure a successful M&A process. These factors also help develop an understanding of the importance of cultural due diligence.
Cultural Rituals, Heroes, and Codes
During the CDD process, it’s important to consider the following components and their relevance to the organization’s culture: rites and rituals (e.g., celebrations, activities), heroes (those who personify the truest form of values), communities and networks, codes and norms (the “rules of engagement” in an organization, often formulated in policies and procedures), stories, myths, and legends (company history and other stories that represent the organizational culture and emphasize what the organization values).
An in-depth culture assessment and corresponding map of these elements enable organizations to plan how they’ll grow and evolve together.
Consider the Influence of Culture on The Change Management Workstream
It’s also vital to make culture a major component of the change management workstream. The change management team must identify cultural challenges and seek to achieve integration goals.
For this to be possible, the team requires resources that contain numbers and caliber that match enacting a critical role.
Additionally, both the strengths and weaknesses of the existing cultures must be considered, which requires leadership from both companies to work hand in hand to integrate their cultures.
Read the Cultural Clues
Reading cultural “clues” is an essential part of the CDD process. M&A deals vary greatly, and each deal has its unique M&A insights and considerations.
Paying attention to what’s glossed over or taken as a given enables teams to identify the heaviest cultural weight or the most important elements and values to employees.
To achieve a successful M&A, partnering with an organization with a similar or compatible culture isn’t always the best approach. In fact, intentionally managing cultural differences that build cultural understanding and promote creative synergies can create a stronger and more competitive new company.
Utilizing Analytical Tools
During the process of conducting Cultural Due Diligence, many analytical tools are used to highlight the cultural factors that are essential for closing the cultural gap in a merger or acquisition.
The results of this phase aid in determining the possible cultural conflicts in the M&A and help develop appropriate strategies to prevent them and ensure a promising collaboration.
The recommended combination of instruments and involvement of leadership and employees in this process may vary significantly from one industry to the other. Company size can also influence this.
Additionally, it’s important to adjust the approach in a way that guarantees the success of Cultural Due Diligence.
Using Tech Solutions that Consider Cultural Differences
When going through an M&A process, many businesses utilize Virtual Data Room (VDR) software solutions to facilitate a secure and controlled exchange of documents and remote collaboration.
In a cross-border M&A with a CDD process, companies must make sure that virtual data rooms take cultural differences into consideration. For example, many VDR tools incorporate multi-lingual interfaces and support to smoothen cross-border data room M&A deals.
To recap, cultural due diligence is a crucial part of the M&A process. It helps identify intercultural risks and opportunities, influences integration and post-M&A performance, and guides intentional management of cultural differences.
Companies must make culture a major component of the change management workstream, consider the strengths of both existing cultures, and read cultural “clues” to achieve a successful M&A.