What makes an M&A transaction successful?

At Cactus we’re often asked questions like, ‘What makes a successful M&A transaction?’ or ‘How do I maximise the value in my Agency?’. The answer to both of these questions is cultural alignment between the buyer and the seller.

Over the years having been involved in many Agency mergers and acquisitions, it has been proven time and time again that where there is cultural alignment, there is the foundation of a successful transaction. If there is little or no cultural alignment, it is very likely that either you or your key team members will leave before the completion of any earnout or joined-up journey with the acquirer. This is because cultural misalignment can lead to conflict, frustration, and a lack of motivation.

Sure, Agency owners want to maximise the value of their investment. Years and years of hard graft and who can blame them but in reality to achieve the best sale price more often than not you have to complete the transaction.

The majority of Agency business sale structures are based on a percentage of cash on completion with the final balance tied to an earnout or group performance ongoing. To achieve full value for your sale,  in most cases, you will have to complete the earnout or go on the same journey as the acquirers.

If there is little or no cultural alignment then it's very likely that either you or your key team members will leave before the completion of any earnout or joined-up journey with the acquirer.

Going back to completing the deal itself, without cultural alignment you’re likely to have a difficult conversation about something along the way. It's going to be easier to iron out any wrinkles in deal structure or solve an issue that's cropped up in due diligence when there is a shared vision and values.

Cultural alignment

So, what does cultural alignment between two businesses mean exactly?

Cultural alignment between two businesses goes beyond surface-level similarities and delves into the core aspects that define their organisational cultures. Here are some key aspects that contribute to a strong cultural alignment:

1. Shared Values:

Both businesses have similar core values that guide their actions and decisions. These values often include concepts like integrity, innovation, customer focus, and teamwork. When both companies share these values, it creates a foundation for mutual understanding and trust.

2. Common Goals:

Cultural alignment involves having aligned business goals and objectives. When both businesses are aiming for similar outcomes, such as market expansion, product innovation, or sustainability, their efforts can complement each other, leading to a more successful partnership.

3. Communication Styles:

Aligned businesses tend to have similar communication styles and channels. Open and transparent communication is crucial for collaboration, and when both organisations communicate in a similar way, it reduces misunderstandings and enhances information flow.

4. Leadership Approach:

The leadership styles within both companies should be compatible. If both organisations value participative leadership, for instance, decision-making processes can be smoother and more inclusive, fostering a sense of unity.

5. Workplace Culture:

Cultural alignment extends to the way employees interact with each other and with their work environment. If both companies promote a culture of inclusivity, employee development, and work-life balance, employees from both sides are likely to integrate better and work effectively together.

6. Organisational Structure:

A similar organisational structure will lead to smoother collaboration. When reporting lines and responsibilities align, it's easier to coordinate efforts and ensure everyone is on the same page.

7. Adaptability:

Businesses that share a cultural alignment are often more adaptable to change. They can respond effectively to challenges and opportunities because their cultures emphasize flexibility, learning, and growth.

8. Respect for Diversity:

While cultural alignment implies shared values, it's also important to respect the differences that exist between the two organisations. An appreciation for diverse perspectives can enhance decision-making and problem-solving.

9. Conflict Resolution:

Businesses with aligned cultures are more likely to handle conflicts better. They approach disagreements with a shared understanding of each other's viewpoints, making it easier to find common ground.

10. Long-Term Sustainability:

Cultural alignment contributes to the long-term sustainability of a partnership or collaboration. Businesses that share cultural values are more likely to weather challenges and changes in the industry together.

How to assess cultural alignment

To assess the cultural alignment between your agency and the one you are looking to buy or sell, you should consider asking the following questions early on in the process:

• What are your company's core values?

• What are your company's goals and objectives?

• How do you communicate with your employees?

• What is your leadership style?

• What is your workplace culture like?

• What is your organisational structure?

• How do you handle conflict?

• How do you deal with change?

Our advice going into any transaction is to ask your advisors to really delve into the above in relation to the acquiring business. Yes, it takes more time and effort but it will be worth it in the long term. 

It's also worth thinking with your intuition. In many initial meetings between buyers and sellers, you can almost feel it in the air whenever there is a cultural alignment between the two. The conversation flows easily and a rapport is built.

If you’re considering selling your agency or acquiring one at any point in the future, take one of our buy or sell health checks to assess your current position. Or reach out to Maddy Nadin for a confidential conversation about the best next steps.