Is Culture the Spanner in the Works of M&A?

Culture – Culprit or Easy Scapegoat?

There are many reasons for entering into a merger or acquisition, and as many reasons why they succeed or fail.

But as we all know, many more fail than succeed in delivering net value.

And the same culprit shows up again and again in the research as a significant or the primary cause of M&A failure.

Culture.

Not surprised?  You shouldn’t be because this is the prevailing view, including from McKinsey who say their research shows that companies that manage culture effectively in their integration planning are around 50 percent more likely to meet or exceed their cost and revenue synergy targets^[i].

Out of the 12 peer-reviewed (i.e., commercially unbiased) research papers I studied, 8 pointed clearly to culture as a key contributor to post merger failure. While these ‘yes’ papers tended to be qualitative or literature-based—often referencing high failure rates without extensive empirical data—they were nonetheless consistent in emphasizing culture’s role. Notably, not a single study dismissed cultural integration as an insignificant factor.

This reinforces a key reality of post merger transformation: while integrating processes, systems, and people is challenging enough, it’s the blending of two distinct cultures that often proves most complex. When mishandled, this cultural stitching doesn’t just slow progress—it can actively erode value.

Maybe culture is sometimes an easy scapegoat?

The remaining 4 papers I reviewed – two of these^[ii] included a large meta-analysis and a recent quantitative study – found mixed results, highlighting that cultural issues can have both negative and positive effects depending on context and how management plan and implement the integration.

The risks and opportunities of an M&A are also influenced by how similar the companies are and the type of cultural difference, for example is it a cross-border difference such as between a Chinese and an Australian company or a management style culture between a more structured firm and a more empowering, less hierarchical firm?

Even within the same merger, culture can have simultaneously positive and negative effects in different areas, such as how well the companies blend socially, how effectively they achieve their goals together, and how shareholders are affected^[iii].

Culture Lurks in the Depths

An Australian-based professional services firm I’ve worked closely with chose to expand through both organic growth and acquisition, with mixed results for each.  In a firm where “people are our competitive advantage” the major hurdle to the ‘where, what and how’ of expansion is “can we get good people?”

This qualifier can take certain growth options off the table, and can be a plus (and also a risk) for a merger or acquisition if there not is a substantial degree of cultural alignment.

The firm had successfully partnered on projects for national clients with a small firm in Perth that shared similar values and market positioning regarding client relationships and technical standards.  The firm was a partnership between a business leader and a creative technical expert.  An acquisition was agreed and in many respects worked well.

However, Perth has a very different business culture and perspective to the East Coast cities, and the office continued to operate relatively independently and often without the sense of urgency around business development and commercial project management that was ingrained in other offices.  Financial results became patchy as work wasn’t always sufficient to keep everyone busy, and long projects regularly ran over time and over budget.  Profits disappeared.

This wasn’t a capability issue it was a cultural issue.  The management culture was much more relaxed, targets were considered a guide rather than a mandate and entrenched behaviours and attitudes proved extremely difficult to shift – especially from over 3,000km away!  Eventually a transition to a new office business leader was instrumental in reinforcing the need to evolve the culture to be more closely aligned with the parent company and the benefits in doing so.

The firm encountered very different challenges expanding organically into a new market where there was no suitable M&A candidate (read more in this Successful SME Series post).  Noone internally had the capability, experience or entrepreneurial mindset to start a new business in a new location from scratch, so I was recruited to join the firm for this purpose.  Once the office was established we asked employees to indicate their willingness to move to the new office to ensure we transferred much of the unique culture and know how, and extended the social network.

Out of hundreds of employees we had one serious applicant.  The business culture and to a degree the Aussie culture valued lifestyle, community, familiarity and “big fish in a small pond” mentality to a degree we didn’t anticipate.  Fortunately for us and especially for me he was an exceptional technical leader who single handedly helped infuse the firms values, culture, standards and processes into the new regional business.

Culture as Competitive Advantage

There is an opportunity for mid-size firms to manage the cultural challenges of M&A more successfully than large or mega firms, for a few important reasons:

• The nature of smaller firms tends to involve more people at more levels in the the running of the business (with some notable exceptions especially with entrenched owner-founders) so the likelihood of culture risks being identified early in the M&A process is greater. It’s also likely to encourage broader commitment to finding practical ways to minimise or address these issues.
• Large firms may have an overarching culture, but their scale usually means distinct functional and locational subcultures and silos – complicating high level integration strategies. Silos and subcultures also inhibit the flow of information and knowledge through the organisation, further slowing cultural translation and transformation.
• People in mid-size organisations frequently identify closely with their culture and values and see this as contributing to competitive advantage. They are more likely to have a nuanced understanding of the ‘informal culture’ and are familiar with the network of cultural influencers they can tap on to help drive integration efforts.

Culture Doesn’t have to be the Spanner

Culture is rarely the loudest voice in an M&A room. The financials, the synergies, the legal structures — these dominate the conversation. Yet time and again, it is the quieter, harder-to-quantify force of culture that determines whether a deal ultimately creates or destroys value.

The evidence is consistent, even if not always neat: culture matters enormously, its effects are context-dependent, and ignoring it is rarely a viable strategy.

As the Perth acquisition illustrates, cultural misalignment doesn’t announce itself on day one — it seeps through gradually, in missed targets, fraying accountability, and the slow erosion of commercial discipline. By the time it’s visible, the costs are already real.

But the story doesn’t end there. Culture can also be a powerful enabler — a source of alignment, trust, and shared identity that accelerates integration when handled with care and self-awareness. The spanner only stays in the works if you leave it there.

For mid-size firms in particular, there is a genuine and underutilised advantage here. Closer to their people, more attuned to their informal networks, and less burdened by the subcultures and silos that plague large-scale mergers, they are better placed to catch cultural risks early — and act on them. That proximity is not just an operational reality; it is a strategic asset.

The firms that will get M&A right are not necessarily those with the most sophisticated integration playbooks. They are the ones that treat culture not as an afterthought to be managed once the deal is signed, but as a lens through which every stage of the process — from due diligence to day one and beyond — is examined.

Culture isn’t the spanner in the works. Neglecting it is.

If this feels worth exploring further, I’d welcome the conversation.

Caroline M Burns

Parts of this article were originally published in the June-July 2025 edition of The Regenerative Edge.

References

^[i] Ignacio Fantaguzzi, ‘The Importance of Cultural Integration in M&A: The Path to Success’, 1 February 2024, http://ceros.mckinsey.com/chapter-switchera-desktop-3.

^[ii] Silin Ye et al., ‘Managers as the Bridge: How Cultural Friction Influences the Integration of Cross-Border Mergers and Acquisitions’, International Business Review, 1 March 2023, https://doi.org/10.1016/j.ibusrev.2023.102138;

^[iii] Gunther K. Stahl and Andreas Voigt, ‘Do Cultural Differences Matter in Mergers and Acquisitions? A Tentative Model and Examination’, Organization Science 19, no. 1 (2008): 160–76, https://doi.org/10.1287/orsc.1070.0270.