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Creating value beyond the deal

Culture is critical in New Energy dealmaking

The transition to New Energy is generating more investment opportunities than ever. Because New Energy mergers and acquisitions are often in areas which are either adjacent to the existing business, or completely new to it, the acquiring company will frequently need to build new capabilities and acquire new skill sets. This is where the role of culture becomes critical to creating and protecting value.

To explore the role of culture in New Energy and the critical part it has to play, we interviewed senior decision makers at both acquiring and acquired organisations. Our report Creating Value Beyond the Deal: culture is critical in New Energy dealmaking delves into the present state of the New Energy deals landscape and provides insight into what acquiring companies are doing well, but also what needs to change. Our findings suggest many acquiring companies have an intuitive understanding of organisational culture and how to address it. However, few have a systematic approach to managing culture during an acquisition.

What if you looked at your M&A differently?

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“Understanding how to nurture culture throughout the integration cycle (both before and after the deal) ultimately determines which deals succeed, and which don’t, in these New Energy markets.”

Andrew McCrossonNew Energy Leader, Transaction Services, PwC UK

Strategic challenges for New Energy companies

Culture should be treated with as much importance in a deal as the valuation multiples. Ultimately, it will be those who can fuse financial engineering with culture management that will emerge as winners in the New Energy space.

  • Culture is not a numbers-driven exercise. Culture is intangible, hard to define and difficult to measure. It is therefore not an easy thing to get right. The stakes, however, are high. Misreading culture can ultimately destroy a company’s value.

  • Best-practice cultural due diligence should be codified. Many interviewees from acquiring companies intuitively understood some of the steps needed to address culture in dealmaking. 

  • This is an emerging and complex space to invest in. Acquisitions in New Energy are very much a new asset class for most companies. Successfully executing these transactions is therefore a complex undertaking.

Did cultural issues hamper the realisation of value in the deal?

All EUMI deals: yes - 64%, no - 36%; EUMI deals where significant value was lost: yes - 100%, no - 0%; EUMI deals where significant value was added: yes - 40%, no - 60%

Base: 2018 survey of 100 corporate senior executives in the energy, utilities and resources sector
Source: Creating value beyond the deal: energy, utilities and resources report

Key Findings

Our findings suggest many acquiring companies have an intuitive understanding of organisational culture and how to address it.

Dealmaking in the New Energy space is about embedding a new culture as well as acquiring new capabilities

A clear strategic rationale for an acquisition was seen as very important. And, culture and employee engagement should both feature highly in the diligence and deal planning process.

A formal process for “cultural due diligence” can complement an intuitive approach

While all interviewees on the acquiring side had an intuitive understanding of managing culture in deal making, few used a formal process to reflect their methodology.

Aligning the acquirer’s need for process compliance with the target’s need for agility is a difficult balancing act 

Acquiring companies had a strong awareness of the need to protect the unique culture of an acquired company by not overwhelming it with process requirements.

The right “degree of separation” between parent and acquisition depends on the strategic importance of culture

Our interviews revealed a range of approaches for integrating New Energy acquisitions, from rapid absorption into the parent at one extreme, to leaving the new business completely alone at the other.

Smaller acquired companies inevitably face some uncomfortable realities

There was broad recognition that a business being acquired by a larger company risks having its new parent’s culture imposed on it.

“Culture is different from other business topics: it is implicit rather than explicit, emotional rather than rational — that’s what makes it so hard to work with, but that’s also what makes it so powerful.”

Jon KatzenbachManaging Director, PwC Strategy&

Culture and its impact on value creation in M&A

In a separate study, we interviewed 600 corporate executives, globally and from a range of sectors, to understand how they create value through M&A and the lessons they have learned along the way. Many leading dealmakers recognise they should have prioritised people and culture during their last acquisition or divestment and a significant percentage also say that value creation was adversely affected by cultural issues that should have been addressed earlier.  

  • 92% believe they could have handled communication and culture management more effectively during their last deal.
  • 82% who say significant value was destroyed lost more than 10% of key employees post-deal.
  • 65% of acquirers say cultural issues hampered the creation of value.

Tellingly, for acquisitions with significant value lost relative to purchase price, all respondents say that cultural issues hampered the realisation of value.
 

Did cultural issues hamper the realisation of value in this deal?

Acquisitions with significant value lost relative to purchase price: yes - 100%, no - 0%; Acquisitions with significant value created relative to purchase price: yes - 38%, no - 62%

Source: Creating value beyond the deal report

Contact us

Andrew McCrosson

Andrew McCrosson

Partner Deals, PwC United Kingdom

Tel: +44 (0)7714 711161

Adrian Del Maestro

Adrian Del Maestro

Director of Research, Strategy&, PwC United Kingdom

Tel: +44 (0)7900 163558

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