The often-overlooked factor in a successful acquisition: compatible cultures

A merger that looks good on paper can quickly come unstuck if the two teams have radically different ways of operating.

In April 2020, Rob Douglas, the chairman and CEO of security-focused software firm BioConnect, came to a realization. The company had been growing steadily for a decade, but to truly scale, BioConnect had to start acquiring other companies. But which ones? Douglas was looking for a company with complementary technology that served users that BioConnect didn’t already reach. Plus, it needed to have a similar workplace culture.

That last point is especially important. Integrating a team with similar core values is easier, thereby ensuring the long-term success of the deal, says Daneal Charney, a people and culture expert and an executive in residence at MaRS, an innovation hub in Toronto.

“If there’s a cultural clash, it disrupts business, and you don’t get the value that you thought you would,” says Charney. “Having two teams with different rules about how you work is not going to lead to strong performance.”

In fact, a lack of cultural integration is a common factor in the failure of a merger, says Douglas. “Without a focus on cultural alignment, it’s highly likely the business case for buying the company will not get realized, the shareholders will not get the return they’re looking for and the employees will become disgruntled and ultimately leave.”

Here’s how to avoid such a costly mistake.

Choose companies with similar values

Make culture a priority from the beginning. At BioConnect, Douglas determined the ideal acquisition was MedixSafe, a company based in Memphis, Tenn. that makes secure storage devices for medical and emergency services. From the get-go, he had frank conversations with MedixSafe’s leadership to get a sense of how invested they were in the company, employees and customers. BioConnect also conducted a detailed review of MedixSafe’s digital assets, including its website, videos, blogs and customer references, which helped validate those insights.

“As you learn about their beliefs, you can assess what the root DNA of the company is, and whether it’s in alignment with your own company’s culture,” says Douglas. For example, he was happy to learn that MedixSafe shared his focus on customer success and had a similar approach to resolving challenges.

Gather as much information as you can about the company’s mission, vision and values as well as employee sentiment. That’s what the team at Waterloo-based Axonify did after it acquired employee communication startup Nudge, says Andrea Vrbanac, the company’s vice president of people and culture.

As soon as the acquisition was announced in 2022, Axonify distributed employee engagement surveys and ran focus groups to understand how employees were feeling and what their biggest concerns were, which helped leadership prioritize tasks during the integration process.

The acquisition paid off: Axonify was able to grow its headcount by 25 percent, which allowed the company to scale its operations.

Be intentional about merging both companies’ processes

Cultural integration isn’t just about values, says Charney, who counsels companies in MaRS’ Momentum program on attracting and retaining talent. It’s important for the buyer to diagnose how work actually gets done in the company they’re acquiring and enlist its leadership’s help in documenting those processes. This goes far beyond an org chart; it means looking at exactly how communication happens, how teams collaborate and even how vacation time works.

Documenting processes also encourages workers to think about improvements and new approaches, says Charney. “It’s a time for reflection and codifying, so that everyone can see if these things are going to create friction, or if they are actually complementary.”

Both companies should do a side-by-side comparison of all key practices, including learning and development, rewards and recognition.

“You want to have unified practices over time, but the acquirer must be sensitive,” she says. “Before making any changes, the acquirer should interview top talent and understand what drives them and what they’d like to preserve about their former company.”

Appoint an integration manager

Douglas credits meticulous planning for BioConnect’s successful acquisition of MedixSafe. Since the acquisition, BioConnect has been growing more than 100 per cent annually. In fact, the company is currently pursuing two other acquisitions, and intends to continue acquiring companies at the rate of one or two a year for the next three to five years. Part of that success was due to the fact that there was one person in charge of the process. “Somebody needs to be taken out of their role full-time and do nothing but prepare for the integration,” Douglas says.

At BioConnect, that person was Jeff Crews. He was responsible for building the integration playbook, which included everything from how the company would communicate with employees on the day the deal closed to planning how it would onboard new employees, partners and customers with specific milestones earmarked for the first 30, 60 and 90 days.

Importantly, that playbook was developed while negotiations were underway. “A successful acquisition begins by having a clear, documented plan in place before you actually close,” Crews explains. Throughout the process he prioritized three core themes: communication to all relevant stakeholders, meeting financial objectives of the integrations and continuity.

Clearly communicate what’s changing — and what’s not

Employees at both companies often experience a lot of stress during acquisitions, and will want to know two things: what is changing and what is staying the same? Tell them as much as you can.

“People want answers and certainty,” says Marg Wiley, who worked at Nudge prior to its acquisition by Axonify and is now a director on the people and culture team. “But sometimes you don’t have the answers right away. You’re still working out the fine details: How do payroll, benefits and even email addresses change?”

It’s important to keep the communication coming in the days, weeks and sometimes even months following the deal closing. For example, Axonify leveraged its existing employee engagement tools, including its internal podcast, which produced a special episode that introduced new team members. The company also hosts bi-weekly Ask Me Anything sessions, where team members could anonymously submit questions for leadership to address. This became a great way, Wiley says, for the “Nudgers” to see Axonify’s culture of transparency and integrity. It went a long way toward reducing employee stress and uncertainty.

Be patient

Don’t rush the process. “When it comes to culture, it takes time to develop trust,” Wiley says.

Axonify’s leaders became role models of the company culture, asking new employees how things were going and asking what’s needed, a strategy that Wiley found particularly effective. “I came from a smaller company where I felt really connected to every single individual, and suddenly I was in a company three times the size. But it was reassuring to see they were making sure that I felt connected.”

Remain flexible

If companies aren’t sensitive to the level of disruption, Crews says, they can end up interfering with their own operations at a time when they can least afford to do that. “Business continuity and demonstrating financial performance during the integration phase is absolutely critical,” he says. “Ultimately, you need to prove the business case.”

For instance, BioConnect has a thorough onboarding process that’s designed to reinforce the company’s culture. But during the acquisition, it quickly became apparent there were limits to how many workers could go through the time-intensive process without impacting customers, so Crew slowed the pace of onboarding.

“Relationship-building takes time, so it’s important to not rush that process. You have to be genuine in your interactions and build trust,” says Axonify’s Vrbanac, noting that a patient approach pays off. “The company is now positioned to grow product offerings, customer support and sales and we’re excited for what’s next.”

MaRS Momentum program works with high-growth Canadian companies to accelerate their path to hitting $100 million in revenue. Is your business Canada’s next anchor company? Find out more and apply to join the program.

Illustrations: Monica Guan