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M&A cultural fit pays for family-owned firms

Culture builds customer and employee loyalty

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Family consulting notary public office Family-owned businesses that prioritize culture understand that it plays a critical role in an M&A opportunity, whether buying or selling. For sellers taking advantage of today’s active M&A environment, insisting on interorganizational fit helps to ensure the company’s hard-earned legacy and proves further financial worth to the potential buyer.

Culture concerns both buyers and sellers “The head of the house, the CEO, is often the matriarch or patriarch of the icon of the brand, so when she or he successes out, it’s really important to understand what culture she or he had when an outside person wants to take on a leadership position,” advised Dr. Tiffany Yates, senior manager, Financial Institutions: Conduct and Culture, Strategic Risk.

Dr. Tiffany Yates pull quote One family-owned firm that has taken culture to heart grew from $30 million in 2009 to $1.5 billion in 2018. Don Daseke, CEO of Daseke, Inc., shared his family-owned trucking company’s growth story, centered on strategic M&A. Daseke’s company has been on the buying side, but his experiences are as informative for sellers as for other buyers.

In a podcast hosted by the National Center for the Middle Market, Daseke described his firm’s acquisitions as family companies with personal connections to their employees and long-time relationships with customers. It’s the same for Daseke, Inc., he said: “Our customer relationships are typically all over 20 years, some much longer. We’ve got one customer that we’ve moved everything that they produce for 60 years.”

“We don’t change the management,” Daseke said. “We don’t lay off any people. We keep the family name on the trucks. That means a lot. The typical Wall Street strategy is that you smash companies together, create efficiency, which means laying off people, and in the process you destroy the culture that has made that company. We’re very conscious to not change things at the company to maintain that culture, maintain that leadership, because that’s what made the company successful.

“We want a management team that cares deeply about their people and how long their people have been there in that company. If they’re passionate about their people and they’re passionate about their customers, then it’s probably the right company for us.

“Anybody can buy equipment or facilities, but the people make the difference. They make the difference with customers. They make the difference in your employee turnover. And in this era where we’ve got very low unemployment, it’s darn important, more so than ever, to retain the best people. If you’ve got the best management that cares about the people, you will be successful.”

Consider 5 success factors in due diligence To identify management that cares about the people in a culture similar to its own, a family-owned business in the market to sell should perform due diligence on the buyer. Do this to help ensure loyal employees and customers are treated well and your company legacy is preserved. In your due diligence, take into account five critical success factors:

  • Leadership
  • Workplace environment
  • Human capital
  • Technology
  • Finances

Sharon Whittle pull quote.jpg Finances, as always, hold importance, but performance fades if cultural fit hasn’t been given the same level of attention.

Addressing fit should be based on the recognition that culture is powerful and implicit, organizational effectiveness improves with awareness of what people (internal and external) consider valuable, employees are unlikely to change their cultural beliefs in response to exhortations to adopt new cultural values, and culture is closely linked to behaviors that affect business value.

The strength of culture has been thoroughly observed by Sharon Whittle, principal, Human Capital Services. “My experience with family-owned businesses is the culture is typically very strong, derived by the family — many times the founder,” she said. “It’s different from a company that’s publicly traded or had multiple ownership because often that’s not a blend of the people,” said Whittle.

For a successful deal, CEOs on both the seller and buyer sides will agree on the relationship between culture and value creation. They’ll look beyond the financials and strategic rationale to acknowledge the significant challenges presented by integration.

Synergies count; assess and compare company cultures To avoid a destructive clash, incorporate a thorough cultural assessment in your due diligence. Assess similarities and differences in such areas as shared values and beliefs, work style and decision-making, employee engagement and team effectiveness, communication strategy and tone, and approach to risk-taking and change management. The comparison will help in determining if the organizations will blend well.

Consider these factors in cultural assessment:

What is the buyer firm’s talent management approach?
  • Is it a buy or build talent organization?
  • What will be their overall approach to talent management in the new blended organization?
  • Is it a performance-management culture?
  • What is the average tenure of an employee?
  • What has been the firm’s turnover rate over the last few years?
  • What kinds of reward and recognition programs are in place?
  • What is their approach to employee communications (open and transparent vs. need to know)?
  • What areas of work would likely be duplicative in a blended organization?
  • What is their commitment to retirees?

What is the buyer firm’s operational model?
  • How are key decisions made?
  • How does work get done, and where can efficiencies in work be gained?
  • How are budgets developed and managed?
  • What is their approach to change management?
  • What is their risk appetite?
  • What do the reporting structure and organization chart look like?
  • How are teamwork and collaboration demonstrated?

How does the buyer firm align its brand values?
  • How closely aligned are its brand values to those of your family business?
  • Does the firm demonstrate that it lives its brand values?
  • What presence does it have in the local community?
  • What are customers’ perceptions?
  • What is the brand reputation in the marketplace?

In addition to evaluating the potential buyer through discussions with leadership and employees, as well as observation, review documents and collateral materials:

  • Vision/mission/values statement
  • Employee communications (e.g., newsletters, memos)
  • Employee policy handbook
  • Customer communications and satisfaction surveys
  • Performance management policies, processes and procedures
  • Organizational charts
  • Job descriptions (examples for each level )
  • Employee benefit plans
  • Noncompete agreements
  • Historical employee engagement surveys
  • Historical employee exit interview notes
  • Company strategic plan
  • Annual reports
  • Management reports (e.g., KPIs, dashboards)
  • Company blogs

Prepare for a potential buyer Compare your organizational components to ensure your culture is as effective as you intend it to be. Identify cultural gaps and change behaviors where necessary. Grant Thornton identifies five culture types (Innovative, Customer, Employee, Continuous Improvement and Risk and Quality) which mapped to key organizational components:

Marketing culture campaign chart

Selling a family-owned business impacts family members and long-term employees and customers. Performing comprehensive due diligence on the potential buyer is key in accepting a deal that will preserve legacy, culture and values.

Contacts Dr. Tiffany YatesDr. Tiffany Yates
Senior Manager, Financial Institutions: Conduct and Culture, Strategic Risk
T +1 678 515 2314

Sharon WhittleSharon Whittle
Principal, Human Capital Services
T +1 704 632 6884

Ed KleinguetlEd Kleinguetl
Partner, Transaction Services
T +1 832 476 3760