When it Comes to M&A, Culture Eats Contracts for Breakfast
The firms that bring culture into the fold will create better business decisions, protect their client from liability, and increase transaction success rate.
December 19, 2017 at 01:00 PM
5 minute read
Johnson & Johnson and Actelion. CVS and Aetna. 2017 has been a year peppered with mega mergers, and according to Deloitte's 2018 State of the Deal report, corporations and private equity firms foresee an acceleration of M&A activity in 2018—both in the number of deals and the size of those transactions. As you can imagine, law firms, financial groups, and consulting groups are at the ready to jump on the bidding process and bring these M&A deals to fruition.
There are several areas of review commonly understood to be essential to ensuring a deal will deliver the anticipated ROI. Fully vetting the target company's technology, intellectual property, historical financial statements, and all the target company's contracts and commitments are always at the top of the due diligence activities list.
|Going Beyond the Due Diligence Checklist
According to the same report, however, aligning cultures is also a key area of concern for successful integration. While objective data points that live in excel spreadsheets and hide in troves of contracts deserve meticulous scrutiny, cultural data points that contribute to successful integration live elsewhere and often don't get the attention they deserve.
Understanding a target company's culture, data management, and process management are missed opportunities to gather key insights that contribute to successful M&As. Firms and practice groups that can delve into these next several layers and provide deep analysis will differentiate themselves and offer their clients better counsel.
This brings us to the big question: How can culture be assessed more accurately to contribute to a successful deal?
We at Heretik believe cultural assessment comes down to a fundamental shift in the due diligence processes typically used, in order to understand a company at its core. Firms have been using the same due diligence process for more than 40 years, yet the way employees work has changed radically over that same time; the rich cultural data points necessary to this enhanced understanding don't exist in the far corners of spreadsheets and contracts because they are in new tools and systems that haven't been captured and require a different analytical eye.
At first pass, this can seem like an impossible task; however, the e-discovery space has been using techniques to collect, organize, and act on electronically stored information (ESI) for the last 10 years. There is no reason why these techniques and practices should only be used for litigation.
|Digging Into Employees' Digital Footprints
Think about where evidence of culture exists in your company–it exists outside the email inbox, in tools that the due diligence process doesn't dip a toe into.
One example would be Slack, a widely used, completely searchable, cloud-based set of team collaboration tools allowing users to message one another about a topic or project, share files, and otherwise get work done. These messages shed light on how people are working with one another. Are team members sending more private or public messages? Do they have a shared goal? And what's more—are they actually working toward it together? Analyzing these discussions can help provide these key insights.
At a previous start-up I helped build, we created a Slack channel where we posted all the amazing things our users did with our product. Seeing the solution out in the wild created a sense of excitement for our team and validated our “product-focused” culture.
Another would be the story that lies in the data of help desk tickets like Zendesk. A company that responds within their allotted SLAs says a lot about how they treat their clients and speaks volumes about their overall culture. It's a culture that values prompt service, is committed to their client's success, and holds themselves accountable for it. That's a crucial piece of data to be uncovered that will inform the viability of the merger.
We believe that a firm's ability to harness this data and uncover what's going on in a target company below the surface will be the differentiator that helps them advise their client in ways competing firms following typical due diligence practices can't. The firms that take this approach and bring culture into the fold will create better business decisions, protect their client from liability, and increase transaction success rate. Most importantly, they will ensure a successful integration once the transaction is complete to allow their clients to easily surpass the expected ROI on the acquisition.
Charlie Connor is the CEO and Co-founder of Heretik. Heretik is a Chicago based software company that uses machine learning to make the contract review process smarter, helping attorneys identify risks, obligations, and opportunities in contracts. The solution turns massive and disparate troves of digital documentation into insightful, valuable knowledge attorneys can use. As a CEO with more than a decade of experience in enterprise SaaS, Charlie believes that any challenge can be solved through the right mix of people and technology.
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