Strategic goals like market expansion, cost synergies, or technological advancements often drive Mergers and Acquisitions (M&A). However, one critical yet frequently overlooked factor in the success of M&A deals is cultural fit. Research shows that cultural misalignment can be a significant contributor to M&A failures, leading to diminished value and unmet expectations.
Defining Cultural Fit
Cultural fit refers to the alignment of values, beliefs, and operational practices between the merging organizations. When cultural differences are ignored, integration challenges often arise, affecting employee morale, productivity, and overall business performance.
A company with a hierarchical structure merging with one that champions flat, agile management might struggle to unify their workforces and decision-making processes.
One of the most visible examples highlighting the importance of cultural fit is the failed merger between Daimler-Benz and Chrysler in the late 1990s. Despite promising financial synergies, the two companies clashed over leadership styles and corporate culture. This lead to an eventual split and significant losses.
How M&A Experts Assess Cultural Fit
Panelists on Midaxo’s recent webinar on M&A relationship management underscored the critical role that cultural fit plays in the success of their own corporate development deals.
Jim Irwin, EVP of Corporate Development (Inframark)
For Jim Irwin (EVP of CorpDev), culture is fundamental to the decision to acquire a company—as important as the financial, operational, or strategic aspects of the deal. Jim meets with targets personally before issuing a Letter of Intent and multiple times before closing. He does this to ensure that there is strong cultural alignment between Inframark and the business they are buying. These sessions serve to align expectations about the future, expected outcomes, and the way each party will address issues when they inevitably arise. They also clarify the level of cultural alignment and help develop rapport with the prospective target’s leadership to strengthen that alignment. This practice has raised Inframark’s perception in the market as an “acquirer of choice”, as acquired companies spread the word about the success they are enjoying.
Evan Shufflebarger, VP of Corporate Strategy and M&A (HeartLand)
For Evan Shufflebarger, VP of Corporate Strategy at HeartLand, cultural fit is the biggest indicator of acquisition success. Evan looks for green and red flags during the evaluation and diligence processes that signal either good or bad cultural fit. Visiting the potential acquisition on-site and listening to how the owner talks about their team is one important flag. Owners who focus on themselves as the sole source of their success is a red flag; those who talk about the strength of their team and the impact that has had on the growth of the business is a green flag.
Excessive focus by an owner on what happens to them if things don’t work out, or safety metrics that are lower than industry standards are red flags that there may be cultural misalignment.
Evan also looks for an understanding on the part of the potential acquisition’s leadership team that change is an inevitable part of joining HeartLand—and enthusiasm to be part of that change is a big green flag as well. He tells prospective acquisitions that “Growth creates opportunities” and that HeartLand’s culture is “Join us, Stay you.” By that he means that while the newly acquired company may retain its brand, that they also need to align with HeartLand’s growth mindset. Organizations that don’t seem able to buy into that exchange are not a good fit.
Final Thoughts and Further Reading
Ultimately, cultural fit is not just a soft factor but a pivotal element of M&A success. Organizations that recognize and address this aspect are better positioned to achieve their strategic goals and create long-term value. Both Jim and Evan are clear that poor cultural fit is reason enough not to move forward with a deal. When you do a deal with a culturally misaligned company you spend huge amounts of time dealing with the ramifications later. In cases of poor cultural fit, it’s easier and smarter to say “No” up front.
You can read more about successfully combining companies and their cultures in our previous article: What Should Change Management Look Like in 2025?
Midaxo’s purpose-built, end-to-end M&A platform includes tools that both Jim and Evan use to manage the myriad of relationships required to effectively find, close and implement multiple deals successfully. Contact Us to see how Midaxo can help you do the same.