Buying a technology start-up could be a fast-track to digital success for a large traditional business, or a way to avoid becoming obsolete. But culture clashes mean that digital acquisitions by non-digital companies are prone to failure even when standard due diligence practices are followed.
In our experience, compatibility of corporate cultures is often the weakest link. The standard due diligence process covers legal, financial and commercial issues but the cultural match of the acquirer and acquiree is rarely, if ever, considered.
Mazars is working with U Change, an organisation that helps large companies build links with start-ups, to develop approaches to gauge the compatibility between a large corporate and a start-up in an acquisition process. U Change has built an algorithm that evaluates complementarity and compatibility based on a mix of evaluation questionnaires and Artificial Intelligence (AI) whilst Mazars has developed a methodology to audit the drivers of culture in corporations and the behavioural responses resulting from these drivers.
We’ve pinpointed eight cultural elements that need to be considered early on in digital acquisitions.
- Values and purpose. The acquiring company needs to have well-articulated values that fit its purpose. This helps to identify suitable targets with shared values and avoid future tension between the two organisations.
- Leadership style. The leader’s behaviour tends to be reflected in the organisational culture.
- Leadership communication. A leadership team that is open to change and communicates openly about change is more likely to work effectively with a digital start-up.
- Priorities and investment goals. There must be an alignment between the acquired and acquiring companies on investment priorities.
- Long and short-term decisions. It will be hard for two entities to work together if one is focused on decisions for short-term benefits and the other has a much longer-term timeframe.
- Acceptance of failure. Many start-ups use experimentation to develop their products – and failure is part of the process. This can be at odds with the culture at some big corporations.
- Agility. Digital companies are often acquired to increase agility in the larger organisation. This can work but the structure of the acquiring company has to be adapted to change. Alternatively, the start-up may be expected to adapt so it can be fully integrated into the larger organisation. Sometimes the best option is to keep the two companies as distinct entities.
- Acceptance of change. Change can be complicated for organisations that aren’t used to it. Employees of both the acquirer and the acquiree must understand the reason for change.
These aren’t the only elements of culture to be addressed throughout the acquisition process but they can be early indicators of the readiness of an organisation to move forward with start-up acquisitions, by forcing the large corporation to ask the right questions from the beginning.
David Herbinet, Partner and Global Assurance Leader
Antoine Orard, Innovation Projects Manager
This blog is an excerpt of an article, “The start-up culture question” which appears in the Spring 2017 edition of Board Agenda. The full article can be found here.