Advanced Human Capital™

Private Equity Culture Diligence

Despite being an intangible asset, organizational culture can be one of the foundational determinants of a deal’s success. While vetting cultural points of dissonance and planning for assimilation can lead to a smoother integration, neglecting cultural issues can lead to massive turnovers, employee dissatisfaction, and a subtractive deal. The accretion value projected in the deal may never be realized.

Rigorous cultural due diligence is, or should be, one of the basic prerequisites for any deal. A mindset of, “If we can’t show evidence of cultural fit and alignment, then the deal shouldn’t happen, lest we end up buying some assets but losing the talent that runs the business” should prevail throughout the diligence process.

However, conducting cultural due diligence can be difficult, particularly in a seller’s market where confidentiality must be maintained, and under compressed time frames. PE firms need to be well-equipped with various cultural diligence approaches that enable them to flex with the situation. Ankura’s suite of corporate culture diligence approaches include the following:

  • Human Equity Valuation™
  • Diialog™ organizational culture assessment
  • Evaluation of internal or other third-party assessment results
  • Structured interviews and triangulation of findings

It may be tempting, during these times of short-cycle deal making and intense pressure to quickly show investment returns, to overlook organizational culture as a predictive factor of the future success of the deal. Doing so, however, turns a blind eye to what recent history reveals as the real deal-breakers.