June 13, 2017

The Importance of Culture in Your Finance and Exit Strategy

The importance of culture in your finance and exit strategyYou’ve built this great purpose-driven business, have nurtured a strong culture and now for any number of reasons you’re contemplating a transaction, looking for capital or thinking of selling your business. You’re concerned.  You’ve heard the horror stories of unaligned buyers and investors and what became of the business after the deal.  Unfortunately, your concerns are well founded.  The research suggests that more than 70% of business combinations never meet their financial expectations.  Success with private equity is equally as elusive.  None of this is encouraging, so how do you find a solution that works? 

Start by asking some questions: What is a happy ending? What does it look like for you? Everyone’s different and every company has different needs—strategic, capital and/or shareholder liquidity. There is no one answer, and the best advice is to enter a process of discovery and dialogue that puts together a wish list of outcomes that if achieved, you’d be happy.

This isn’t a simple process. Understanding what satisfies the company’s mission, vision and values may not fit perfectly with what is available in the market. You probably need an iterative process that tests your objectives against realistic options—things you actually can get done.  In the end, you and you advisors can settle on a course of action.

It might be an ESOP, which would provide liquidity and allow the company to fully retain its purpose and culture, but can be a challenging structure for funding a high growth company.  Maybe it’s a partial or full sale to a values-aligned private equity firm (yes, there are purpose-driven and values-aligned private equity funds out there), which will generally allow the company to operate as it has been, but can also have issues. For example, how do you get the private-equity firm out if and when they need liquidity and still maintain the company’s mission, vision and values? Maybe it’s a sale to a strategic company, but that has problems as mentioned before; although, it doesn’t have to be that way.

If you elect to explore a sale to a strategic company, we recommend you use a different approach.  The research says that the number one reason business combinations fail is because of faulty integration, and the number one reason integration fails is because the importance of culture was overlooked and the two organizations didn’t jell. Culture is difficult to manage in one organization.  Bringing two cultures together is even more challenging, but addressing culture and values alignment early in the sale process facilitates more successful outcomes.

The people who put deals together are usually very smart, but they are trained in tax, law, finance and accounting. No one at the table knows the first thing about the importance of culture or how to assess cultural differences between two organizations, that usually have cultural differences among their various divisions and departments.

No matter your finance or exit strategy, culture should be your top priority. While it isn’t easy, the fix is to bring cultural assessment into the process from the outset.  Use those cultural insights to help you assess candidates, identify cultural incongruities, inform and shape the transaction structure, and finally, to develop a thoughtful integration plan, which should begin BEFORE you sign the deal. By viewing the process through this culture lens, you can improve the outcome.  By the way, all the big consulting firms have been advocating this for years, but the bankers, lawyers and tax advisers have been loath to change. The process can look something like this:


To say it’s easy is far from the mark, but it can be done. Ben and Jerry’s did it in their merger with Unilever. Honest Tea did it in their sale to Coke, and we’ve done it in the merger of private companies. The lawyers will fight you, but in the end, the buyers—or at least the smart ones—will acquiesce, because your argument is sound: it is in their best interest, and it is.

The path to greater transaction success is to add culture assessment and integration planning to the M&A and corporate finance process.  It increases alignment, reduces risk, and leads to deal structures and integration plans that are key to a transaction’s success – creating value for the seller, the company, and the buyer/investor. The tools exist to help you do this. You just have to invite advisors to the table who know something about culture.

Do you have your exit strategy in place? Listen to Jill Nelson, Founder & CEO of Ruby Receptionists, and Kris Maynard, Co-Founder & CEO of Essential Ingredients, share their exit strategies in this online fishbowl moderated by Small Giants Community Founder,  Paul Spiegelman.


About EPOCH Pi

EPOCH Pi is a purposeful investment bank working with purpose-driven and culture-rich companies to sell to or raise capital from values-aligned parties. We believe identifying the best strategic option given a company’s purpose, values and culture, as well as the best financial or strategic partner, requires a new approach. We’re a different kind of investment bank in that our process is designed to determine values and culture alignment with interested investors or buyers along the continuum of the deal process from targeting through integration. Financial terms are critically important, but evaluating the alignment of values, structuring a transaction to protect them, and creating a thoughtful integration plan are key to longer-term success. EPOCH’s proprietary culture and integration process increases alignment, reduces risk, optimizes financial value, and leads to structures and integration plans that help preserve the fabric of a company’s mission and culture – creating value for both the buyer/investor as well as the company. It is our desire to ensure that purpose-driven companies survive and thrive (beyond a transaction) so they can continue to influence, inspire, and exemplify how the power of business can have a profound positive impact on all stakeholders – employees, customers, suppliers, communities, the environment, and shareholders.