Priming the deal: Leadership and culture insights in M&A 

Mergers and acquisitions (M&A) mainly focus on auditing business financials and track records to predict future performance. But to drive growth and change in today’s environment, corporate and private equity teams should also assess the human capital side of the deal — including culture and leadership.

M&A transactions begin with one simple question: “Does the deal align with our growth strategy?” Evaluating potential targets pre-deal can provide valuable insights to either support or challenge M&A rationale. This includes insights around leadership quality, pervading culture, skills profiles, employee sentiment, workforce change and technology adoption. Ultimately, leadership and culture assessments are at the heart of driving a deal’s value.

Amid slow organic growth, many organizations are pursuing M&A transactions to meet their goals. More than a third (35%) of executives say the most important deals this year will be those that provide a talent or skills advantage. But it’s often hard to assess pre-deal whether a company’s skills can accelerate the legacy business.

Deal teams also want to know how leaders lead, how they manage the business, and how they engage and retain talent to drive scalable growth. These teams are increasingly leveraging talent intelligence platforms, which use artificial intelligence (AI) to provide vital insights across the M&A lifecycle:

• Early stages: Benchmarking and comparing the skills within target organizations
• Due diligence: Identifying potential risks in leaders’ skills and abilities (or lack thereof)
• Post-close: Gauging executives’ alignment on strategic priorities and execution

Workforce sentiment toward the deal and the acquiring business can make or break the success of M&As. Within two years of closing a deal, companies typically lose about 40% of their critical talent — a sharp drop in the labor and skills they’d expected to gain. The true cost of this turnover is not just the value walking out the door, but also the impact of churn and delays on both deal execution and company culture.

Here’s the good news: What gets measured gets managed, and deal teams can measure employee sentiment in different ways. They can analyze passive data (such as employee performance or communications) in diligence, or take a more direct approach post-close through engagement surveys and focus groups.

Evaluating workforce sentiment is business- and deal-critical. Employees who feel they are thriving at work are more than three times as likely to feel satisfied, with no plans to leave, than those without a sense of thriving. By measuring sentiment throughout the deal, organizations can better predict and mitigate the risk of losing talent and capacity.

Creating a purpose-driven culture requires constant evolution to drive growth and other deal outcomes, but this is easier said than done. Interestingly, 36% of executives in 2024 noted that culture alignment issues had significantly compromised M&A deal value over the prior few years. An organization’s culture determines whether it can adapt to market dynamics and execute on deal requirements.

For corporations, M&As can help tap new markets and capabilities — provided the two different cultures can mesh. When a buttoned-up firm acquires a more business-casual startup (or vice versa), a misalignment around business norms and behaviors can fuel infighting and lost productivity.

For investors, multiple studies have shown that an organization’s culture can impact the yield in market value of a deal. Assessing a target organization’s culture — from leadership to conflict management to decision-making — can help identify the key risks and value drivers of the deal.

Historically, deal teams have relied on leadership teams to describe their own style and the broader organizational culture. This can lead to self-reporting bias: Whether on purpose or not, leaders might omit or misrepresent key details when sharing information. By consulting a broader range of insights and instruments, deal teams can better position themselves for success.

As technology changes the world of work and the global economy, another key driver of deal value is adaptability. Modern technology can accelerate growth by augmenting talent and unlocking new capabilities, but the shortcomings of legacy tech can grind business to a halt. An organization’s technology profile reveals where it is on the digital transformation journey, whether technology is embedded into the culture, and most importantly, its potential for change adoption.

Digital-first organizations have a strategic advantage in the age of AI, but being digital can be a heavy lift if it’s not already in the target company’s DNA. Digital-first cultures boast not only the tech itself, but also the skills, culture and governance needed to adopt new tools, evolve new ways of working and thus keep tech-savvy employees engaged and proud to stay.

For investors, technology and change adoption profiles also help predict the value of a deal by providing vital insights around costs. Digital-first targets can easily migrate to new systems with minimal down-time; they leverage AI and automation to bridge gaps in knowledge, skills and productivity; and, they’re resilient to digital threats such as cyber risk and misinformation.

One essential stage in every deal is ensuring the leadership team is fit for purpose — both the purpose of the deal, and that of the broader business strategy. The challenge with traditional approaches is that they tend to focus more on the past and what people have done, rather than the future and what they’re capable of. Yet in today’s highly uncertain world, it’s the breadth of people’s business mindset (what they have learned from experience) and their leadership style that might better predict their success in the medium term.

It’s important to use a range of tools and techniques to assess leaders’ breadth of mindset and their critical thinking. According to Mercer’s 2024-2025 Global Talent Trends:

• Differences in leadership styles was the most-cited People challenge with the biggest negative impact on business/deal value, chosen by 48% of HR leaders
• More than one in four (28%) HR leaders believe Misalignment in leadership team had the biggest negative impact on business/deal value

Executive assessments are vital to the success of M&A transactions. Organizations have long relied on tools like the Hogan Leadership Assessment to rate people’s skills, motivations and personalities within a leadership context. Yet during the M&A process, leaders face a degree of complexity and misalignment that can’t be solved with a single skill or personality type. Navigating novel policies, bureaucracy and team dynamics requires a more adaptive leadership style — and a more holistic way to assess how they will meet growth targets.

When asked what differentiates good versus great leaders in their organizations, roughly two-thirds of HR leaders chose Making decisions in the face of ambiguity (66%) and Tackling complex problems with critical thinking (64%). To that end, leaders must strike a balance between:

• Strategy & Execution, knowing when to look — and when to leap
• Integrity & Stakeholder Navigation, being open and honest to earn buy-in
• Empowerment & Organizational Alignment, providing clarity without micromanaging
• Stability & Adaptability, fearlessly improvising without losing the beat
• People & Performance, promoting total well-being and world-class results

For corporate M&A teams, the Leadership Alignment Framework above is especially useful in the context of post-close efforts. M&A playbooks will cover the bulk of different factors and risks to consider, but for everything else — and there’s always something else — nothing beats the breadth of business thinking that comes with a paradoxical leadership mindset.

As you pore over the financials and legalese of M&A deals, remember that people risks are the real business risks today. How you identify, manage and mitigate the people issues within a target organization will make the difference between delivering on the deal value and forever playing catch-up.

In M&As gone wrong, the fundamental flaw is often a failure to identify the human capital model required to deliver on the deal, including its strategic value drivers and unique operational necessities. Leadership, culture, employee sentiment, technology, and change adoption are all critical human capital factors that must be assessed in every deal to realize value. There is no exception or shortcut.

To learn more about how we are helping clients unlock deal value, check out Mercer’s suite of talent assessments for M&As and beyond. Keen to speak to an expert now? Drop us a line and we’ll get in touch.