How Culture Affects Your Company’s Valuation

According to the study, “Corporate Culture: Evidence from the Field,” 91% of executives said they believed improving company culture would increase their company’s valuation.

48% of respondents said they would walk away from a merger or acquisition if the company they were bidding on had an unappealing culture*.

Valuations are based on historical data, future predictions, and the sustainability of the current business model, among other factors. 

When company culture is toxic, unsustainable, or fear-based, a merger can negatively impact not only the existing company culture but that of the merging (or acquiring) organization. Culture clashes can reduce productivity, effectively nullifying future predictions of revenue.

How to Avoid a Culture F*ck Up: Our Recommended Tips and Tricks

Your merger might look perfect on paper—but that’s often not enough. Although there might be financial compatibility in your prospective merger, many mergers fail to succeed because they have not considered their level of cultural compatibility. 

Here are some actionable steps you need to consider before you get the ball rolling on your merger.

Conduct a Culture Assessment

Regardless of being a financial match or not, chances are the two companies involved in your merger are run differently. Conduct an in-depth culture assessment on both companies involved.

Identify cultural similarities and differences. Where are you already working in sync? Where might there be potential landmines or disconnects? Are there differing expectations in the way tasks are completed? What does each company’s management practice look like? This is the time to get nitty-gritty.

Through your culture assessments, both parties should come to a mutual understanding of the other party’s strengths and weaknesses and how they work.

It should become clear through this process why the two companies will benefit from a merger. Plus, it will squash any preconceptions about each company, and encourage a true and honest dialogue instead.

But beware! Your culture assessment might bring up more questions than answers and can be stressful. However, conducting this assessment sooner rather than later will prove beneficial to all involved in the merger.

Prepare for Negotiation

After your cultural assessments, prepare to negotiate the new company culture being formed. What practices do you want to keep or modify? What management changes need to be made? 

During these conversations, there may be pushback or questions that need to be answered. It’s not always black and white, and it takes effort. Make sure that during this process everyone feels supported and that their voices are heard.

Define and Implement Your New Culture

Yay, now we’re to the fun part! This is the time when you get to take all of the information you’ve received through assessment and negotiations and put it to use, infusing it with creativity, of course.

As a cohesive team, define your new culture: everything from the big to the small. What behaviors do you want to encourage in the workplace? What won’t be tolerated?

Here, you get to pick out all the bits and pieces that will make your company culture the strongest.

Then, identify how you will implement this new culture. How do you intend to make this culture the new normal? How can you ingrain daily practices to support your new operating model?

Remember, talking about the changes is not enough. People need to know why the changes are being made, why they are beneficial, and how they will be supported along the way.

Your new company culture should be clear from a high level—for example, in your mission statement—and then trickle down the pyramid. Without a set plan, your new culture will fail to stick.

Final Tips

• Use everyone’s common desire for success to your advantage.
• Celebrate! It should, at this point, be clear to all those involved in your merger why it’s happening (and how it’s going to make the company all the more awesome!)
• Communicate regularly and right from the start. Employees may be prone to fear during a time of such intense change. They need to feel secured, valued, and understand why such changes are being made.

Signs of Success

Did you know that 84% of executives say poor culture increases the risk that employees break the law or commit unethical acts? This is a no-no, and clearly something we want to avoid.

So, this brings us to the question: What are buyers looking for within your company culture?

Strong Ethics

Culture sets the tone for ethical employees. Buyers want to know their investment is in safe hands when they acquire or merge with your business.

Low Churn

When a business has an effective company culture, the likelihood of turnover is much lower, which means greater revenue in the long run.

High Productivity

Good company culture means happy employees, happy employees mean a productive workforce, which leads to greater revenue. Buyers want to see that your company will succeed in the future, having a happy workforce is a great step toward that goal.

When buyers are considering a merger, they are looking at how two companies will mesh their cultures to create success. Great culture creates success whereas mismatched culture can cause a new company to fail. If the cultures don’t match, you waste resources, time, and productivity. It’s like trying to jam a square peg into a round hole—it just won’t work.

You Need a Human Resources Unicorn In Your Life

Do you need help merging two companies together, or getting your company culture ready for buying? It’s time to bring in the pros. At Culture Works, we will assess your culture and create a game plan to create success for your specific business.

We provide learning and development for your middle management to be even more awesome than they already are. Once we have a game plan, we will create processes to support your team throughout the merger. 

Whether you’re planning on acquiring a new company, or are getting acquired yourself, working with a company like us can ensure you don’t let culture f*ck it up. Contact us today!