Evaluating potential acquisitions is a lot like dating. You meet because someone you trust introduced you, or you saw a glowing profile of them online, or were enamored by them in person. The excitement builds. On the first date, everyone brings their best self. It goes great. So much so that on the way home, you might be tempted to even start envisioning your life together.
Similarly, deciding if a potential acquisition is "marriage material" follows a process where both parties assess one another. Of course, it all starts with "cultural fit." You hear it all the time: "We both share a strong culture and values" or "our cultures perfectly align." But what does "culture" actually mean?
It's not as clear-cut as running the numbers on financial statements, which of course we also do. And no company is going to say they have a "bad" culture, but we do know that if key aspects of firms' cultures are misaligned, the possibility of a turbulent integration increases dramatically. This isn't just my opinion: In a recent McKinsey
For many firms, evaluating culture can be quite informal. But as someone who has successfully completed over 200 acquisitions, I have found it useful to focus on three best practices to help identify firms that we'd like to move forward with and those that would be a better partner for someone else.
1. Do your research. Begin by completing what we at CBIZ call an "external scan" of public-facing information about the acquisition target. For instance, consider:
- Is their website professional, easy to navigate and well organized? Does it reflect who they say they are?
- How is the business reviewed — by clients and employees — on platforms like Yelp, Google, the Better Business Bureau and Glassdoor?
- Are there any red flags in their social media presence or other publicly available statements — on LinkedIn, X, Facebook, Instagram, Reddit, YouTube? What types of things are they posting? Does it align with your organization's values and culture?
- What, if anything, is the media reporting about the firm?
2. Do they "walk the walk." At this point, it's time to meet with people at the target firm, preferably in person, and ask questions designed to give more clarity on their culture — from the inside.
To that end, we hold 60-90-minute interviews with numerous leaders. Our main priority is to evaluate not only whether they align with our firm, but if they walk the walk: Does what they say they do match the reality?
Dealmakers should assess the gap between "stated" and "actual" behaviors in various areas, including mission/vision, structure, rewards/recognition, systems/processes, relationships and leadership. For instance, look at:
- Decisions: How have critical decisions been made over the years? Is decision-making concentrated with a small group? Is there a partnership model?
- Client referrals: If they aren't getting a lot of referrals, there's the possibility their work may not be as good as they say it is.
- Turnover rates: Employee and client turnover says a lot about a firm's culture.
- Prior reward patterns: For example, do they reward quality, growth, tenure? Is it a meritocracy — or something else? If it's the latter, that could be a red flag.
3. Use your intuition. Something as amorphous as "culture" can't be assessed by metrics alone.
Meeting with firm leadership outside the office, going out to dinner and learning more about their personal backgrounds, what drives them, and why they want to sell will offer crucial information. During these meetings, I've also found that the questions they ask me are as important as what we ask of them. Is their focus on how much money they will make (which is understandable), or are they focused on their peoples' livelihoods? Do they ask us about our culture, and check to see if we are a fit for them?
While harder to quantify, these conversations give insights that can only occur in this informal setting. Seeing someone talk rudely to waitstaff or share their deep love for the firm they founded adds another piece to the "culture puzzle."
When people show you who they are, believe them
Like finding a partner, the decision to acquire a company shouldn't be made on a whim — no matter how tempting it may be. Sometimes, in fact, the smartest decision is knowing when to pull the plug on a deal. It can be a mistake to think you can change an organization. As the maxim goes, when people show you who they are, believe them. Better to cut bait early than risk more heartache (and costs) later on.
With dealmaking momentum expected to pick up in 2025, opportunities will be there for the taking. Doing your due diligence — and conducting a thorough cultural assessment of your potential match — will help ensure you're making the decision that's right for your business.
