M&A Culture
Editor’s Note: This Article Has Been Updated December 5, 2022
How many times have you heard “culture eats strategy for breakfast?” How many HBR cases (among others) are out there citing failed mergers due to culture? We all claim to recognize how important culture is to our organizations. As is the case, how do we continue to see blown opportunities of mergers that fell flat with little of the gain that was promised? Not to mention those “opportunities” that caused more harm than good?
As M&A continues to rise in the GovCon community, it’s important for those looking to buy (and even those looking to sell) to give considerable thought to the culture behind the two organizations and how they will mesh. We all focus on the financial gains, the <wait for it…overused MBA word here> synergies to be gained by streamlining the corporate folks (i.e. layoffs) and the new clients and capabilities gained. It can be a valuable business building opportunity for GovCons. But how much thought has been given to the workforce and the impact in the post-merger world?
Most GovCons in the M&A mix this year have been services companies. Meaning the proverbial “assets leave every day out the door.” If this describes you, how much time and energy have you put behind the impact to your teams? Everyone is excited during the dating phase, where numerous happy hours and get-to-know-you events are held, spreadsheets are modeled with expediential growth, new names are brainstormed. The BD team is completely on board as they look to new capabilities to sell and enhance their commission (BD always thinks it’s staying for some reason). The corporate team of the buyer looks to grow their fiefdom, while the seller’s team is busy negotiating as big of severance as they can from their GovCon. The selling owner wants to take care of their people, but generally wants to take care of their exit more. (We’re not in this for our health.)
Who gives the GovCon employees a voice? Who has the watchful eye on culture to see whether the transaction makes sense? The consultants will push for their commissions regardless, the bankers will look at financial risk, the attorneys will look at legal risk. Who on your team is the voice of sanity that looks to see if combining the organizations really does add up, ensuring that there is retention of your core asset, your people?
Keep this voice of sanity in the forefront of every discussion as you navigate the GovCon M&A waters. Sometimes it is a slam dunk, but tread cautiously, as there are many more failed or missed opportunities in this area than we hear about in the industry. We’re very good at glossing over our bad decisions when we want to, shifting our perspective on GovCon M&As. But look at retention rates, under-utilized funding on existing work, re-compete percentage wins and actual multipliers to see the real impact.
M&A is a credible and viable strategy for most GovCons that have built companies with value. Tread cautiously and think of the company a year or two after the merger as you analyze whether it is a good business decision. Don’t promise the world to your employees, but overlook them at your own peril. Lest they do indeed, walk out the door, depleting the worth of your GovCon.
If you’re looking toward a GovCon M&A opportunity but would like some guidance on your first, second or twentieth step reach out, [email protected]. I’d be happy to have a conversation and help to point you in a positive direction.
