One of the softest parts of evaluating an acquisition, but perhaps one of the most critical, is getting a handle on the culture.  Just because they are in the same industry doesn’t mean they have the same culture as your company or another company you acquired before.

You might be thinking of doing a series of acquisitions, doing a roll-up of several companies in the same business to create a much larger company.  You might find that some companies are as different as night and day in how they operate.

I ran into just that when I was CFO for a pharmaceutical manufacturer.   The first several years we focused on the turnaround of our manufacturing operations and developing new products.  After making a very successful turnaround and going from losing more money than we had in sales to earning 56% net income after tax, we turned our sights towards building an integrated nationwide distribution network.  Strategically, we felt that it would be a great benefit to have an integrated manufacturing and distribution operation.

In the course of one year, we went out and acquired 6 different generic pharmaceutical distributors in different regions of the company.  We closed on 4 acquisitions within a month’s time and then added 2 more within the next year.

After the acquisitions, we had the hard work of integrating these various firms into one nationwide operation with warehouses throughout the country.   Common pricing was established- no small task given the wide range of prices across the firms.  They had very different philosophies ranging from higher margins to lower margins but higher volume.  An integrated IT network was put in place as well- they had very different styles here too- ranging from strong in-house talent to leaning heavily on outside resources.  Financial staff was shored up too.  Some firms had relied on outside CPAs and were a little weak in in-house talent.

What really stood out as different though was the culture at the top- among the biggest differences:

·         One firm was all business.  You felt if the price was right, they would even sell a family member!

·         Another was as warm and friendly as could be.  You felt like family right when you walked in.

·         Yet another had a sharp eye on operations.  When meeting with the owner, he would have one eye on a computer screen which tracked the sales per hour by salesperson.  I recall well one meeting when he cut our meeting short with a comment- “I need to go down and kick some …”

Same businesses, but hugely different cultures.  Don’t take it for granted when looking at acquisitions or evaluating companies you want to do business with.  There is no substitute for making a visit and spending some time to see what the culture really is.