Your Guide to Merging Two Company Cultures

Once your M&A transaction is complete, you may think the hard work is done. Yet, according to Harvard Business Review’s 2020 article:

Between 70 and 90 percent of acquisitions fail. Most explanations for this depressing number emphasize problems with integrating the two parties involved.

So, once you’ve evaluated your company’s readiness, identified the right funding partner, acquired Private Equity funding, and completed the business transaction of your merger or acquisition, likely, there is still an uphill battle ahead.

So what are the steps you can take to facilitate a successful merging of two company cultures?

  • Align the vision for the future: When the entire organization is focused on a shared goal there’s a sense of mission or purpose and of collective effort. Setting that vision requires listening to the teams, not only the leadership but the members of the team who actually do the day-to-day work. Not only will you get greater buy-in to the new larger entity, but you may also uncover operational areas that need attention or untapped markets waiting to be explored.
  • Create a new communication cadence: Your existing team may have been friends since kindergarten, but the company you have acquired doesn’t know who you are. To facilitate a successful merger, you’re going to have to change the way in which you communicate. Consider a team-building day facilitated by a leadership & emotional intelligence expert. Open up Friday office hours (in person or on Zoom) for questions and input company-wide. Invite team members to a Slack channel devoted to “getting to know you” facts. If you lead with vulnerability, you can create the kind of company culture where loyalty and buy-in are high.
  • Consider a re-brand: If you’re merging companies, consider the idea of incorporating elements of the branding of the two companies into one new brand identity. The process of undergoing a rebrand brings a professional messaging facilitator into the mix to open the floor to new ways of articulating your company’s message. The process is collaborative and inclusive, and it can help the two cultures feel more cohesive and aligned.
  • Be clear on the org chart: Put the new org chart on Slack or print a giant version out and put it on the bathroom doors; however you want to get the message out there, let the entire company know who reports to whom and where the power lies. Your clarity will bring comfort. Mergers and acquisitions are times of unsettling lack of certainty, everything you can do to reassure all parties that you know what you’re doing and have a plan will help keep the train on the tracks (and the financial engines firing on all cylinders).

The process of merging and acquiring a company is arduous, from funding to negotiating the actual transaction, there are myriad financial and legal moving parts. Yet, those financial and business transactional elements are not the only factors that can sink the newly-sewn-together ship. It’s the leadership and culture elements that regularly bring down merged companies, reducing productivity, creating bottlenecks, and elevating employee turnover. Creating a strategic plan to facilitate clear communication, a streamlined hierarchy, and shared vision for the future can smooth the otherwise choppy and uncertain seas that accompany every company merger or acquisition.

Think your company is ready to acquire? Check out our article on building a pitch deck to get started!

What are Growth-Focused Private Equity Investors Looking For?

Private Equity investors are highly selective of the companies in which they invest. The focus of a PE firm is on a 5–7 year exit that will yield returns. Private Equity is an active investor who will take a majority stakeholder position in the business to accelerate growth in order to optimize their ROI. PE investors are likely to take an active role in restructuring the company from a process and finance perspective. Don’t mistake this level of interaction and involvement for a desire to gut your company; Private Equity will look closely at the existing teams to ensure that the implementation of their recommendations will go smoothly. A good PE investor will want strong leadership, reliable middle management, low employee turnover, and a motivated workforce to ensure that their vision for the company will be executed.

I am fond of quoting that about 70% of my investment decision of an early-stage company is the team. My rationale is simple: everything goes wrong and only great teams can respond to competitors, markets, funding environments, staff departures, PR disasters, and the like.

— Mark Suster, Upfront Ventures

Let’s review some of the most important factors considered by PE firms as they weigh the investment in your firm.

1. Stable, Recurring Cash Flow

A PE firm keeps an eye on operating costs, overhead, and the cost of doing business as it applies to human capital, as well as those costs for upgrades of processes, software, or office space. In order to manage all of those costs, PE firms look for recurring revenue models. With a stable cashflow, they can be sure that there will be revenue to support current business operations while their investment ramps up future growth.

2. A Competitive Advantage

Be unique and visionary within the industry. If you’re looking for someone to invest money in your blue sky vision for the future, you’d better be sure that what you do is unique and unrivaled in your industry. Asking the question, “What are we the best in the world at?” can bring to the forefront how your company provides a unique product, excels at service or is revolutionizing a sector that is underserved. Articulate this clearly and well and you’ll have your choice of funding opportunities.

3. A Track Record

Private Equity Firms invest in stable companies that need a single injection of capital to accelerate their growth into a new or newly vulnerable area of the market. A Private Equity company will look at how your model has proven itself out over time, your revenue, your margins, how you have improved operationally, and how all of those factors may contribute to this next phase of growth. A track record doesn’t mean you have to be the same year-over-year, it does, however, it means that when you show losses or declines in revenue and decreased margins, it is followed by course correction and marked improvement.

4. Strong Leadership and Management

While most PE investors will take an active role in optimizing existing processes, they are not looking to raise the current structures and start from scratch. PE’s will look for evidence that ownership has invested in strong leaders and that management is performing at a high level. Articulating the internal structures that drive growth, innovation, and productivity in your company will help a PE firm know that their ideas will have an engine to bring them to fruition.

5. Room in the Market

As PE investors examine the companies seeking funding, they also look at the market trends to determine whether there is room to take on more of the market share or whether there is a coming disruption in the industry of the company in which they are interested in investing.

Businesses that are seeking PE investment are high-growth, mature companies with a clear vision for their future. Bringing in Private Equity money is the start of a new and exciting stage in your company’s lifecycle. With the right Private Equity partnership, the vision you have for your company’s future comes within reach. Experienced PE firms know how to bring the right amount of change to an organization to ignite the kind of exponential growth that will take you to the next level.

Ready to put together a pitch deck that will get you funding? Read on…

What is the difference between Venture Capital and Private Equity?

Both startups and companies in high-growth stages require investment to get to the next stage of their lifecycle. The methods available for growth vary, with Private Equity Investment and Venture Capital Funding at the top of most owners’ and founders’ radar.

Private Equity and Venture Capital both exist in the “private markets” world (as opposed to public markets in which companies are publically traded). For an investor, this means that the regulatory compliance issues are different and the structure of the company is likely more fluid, malleable, and able to be influenced by the investing entity to benefit the company.

Both PE (Private Equity) and VC (Venture Capital) firms’ goals are the same: to increase the value of the business they invest in with the ultimate target of a sale of their equity stake, which will ideally yield a profit.

So, what is the difference between PE and VC investors?

Private Equity (PE) investment firms are traditionally more aligned with companies in High-Growth stages who are also in more traditional industries. When PE firms come in and invest, they usually want more than a 50% stake with the goal of rectifying inefficiencies or amplifying strengths they see in a company. Then, ultimately either selling their stake to other investors, taking that company to an IPO (Initial Public Offering), or in the private sector, cashing in on their investment. While the model of the Leveraged Buyout from a Private Equity Firm was the standard in the industry starting in the 1980s, the role of Private Equity has shifted, especially as the tech startup has dominated the investment capital world, thus encouraging more traditional PE firms to see the value and likelihood of success in younger markets.

Venture Capital (VC) investment firms tend to focus on Early-Stage startups. VC funding is rarely exchanged for more than a 50% stake in a company, VCs ask for a minority stake in a company in which they invest. Early-stage Venture Capital funding focuses on companies who are gaining traction in a market, have a concept but need funding to see it out, and have some level of proof of concept but not a long track record of success upon which to base their cap-raise ask. Venture Capital is invested in rounds, or series, designated by letters: Series A, B, C, etc… In the case of Early-Stage startups, they are most often in their Seed Round or Series A round of funding. The importance of your company’s series stage relates to the specific VC firms that will more likely be interested in investing. Finding the right PE and VC firms to pitch to is an integral element to address as you prepare to raise capital.

So, which is right for you? Private Equity or Venture Capital…

Likely, if you’re asking the question, this is the start of your journey and that would indicate that you are a startup. For companies that are more mature and are in high-growth stages, the CFO will already have insights into the private markets and will know that the company is seeking PE funds. So assuming you are in fact starting out and looking for Series A funding, VC investment will be the right area of focus for you.

How do you get VC firms to give you a look?

The process of acquiring your Series A funding is multi-faceted. Companies can rush into pitching VC and Private Equity firms before they have a good understanding of their level of funding-readiness. To optimize every interaction with a potential investor requires that leadership takes a cold hard look at where the company is, financially, operationally, and culturally. With a solid foundation of where your company currently is, it becomes much clearer to a potential investor how you will get where your pitch deck says you are going. At GrowthPath Partners, we guide our clients through a step-by-step process to ensure that they are ready for funding, clear on their vision, and rooted in the data to support a funding ask. Let’s review the process:

Step 1:

Perform an audit of your financials and processes. Taking a high-level look at the way you run your company and addressing inefficiencies and areas of weakness is essential to being able to address tough questions that investors will surely ask.

Step 2:

Perform a market analysis. What share of the market is available for growth? Is there enough potential for profit to entice an investor? If the potential market is $20 million in total, attracting an investor will be very difficult. If the potential market is in the $100’s of millions, there is a much greater upside for an investor and they are more likely to take a look.

Step 3:

Fix what you can fix and don’t shy away from the areas in which investment will allow you to amend weaknesses. This is where the rubber hits the road as you prep for funding. Fix what you can fix and start to clearly define your value proposition.

Step 4:

Build your pitch deck. Build it, and then scrap it, and build it again. A great pitch deck clearly outlines not only your value prop but also the market, the potential for profit, the company culture, and the “blue-sky” vision you have for the future.

Steps 5, 6, and more:

Line up your VC funding options and start to pitch! Being a founder is one skill, pitching to investors is quite something else. Get ready to answer tough questions and build relationships with the right VC investor. Be vulnerable, be honest, and be bold! And don’t be afraid to go back to the drawing board when you get tough feedback in a pitch meeting.

As your company addresses the right sources for your capital raise, don’t make the mistake of putting the cart before the horse and going to VC or PE investors unprepared. Remember, they have one goal: to make money. If you present in a way that shows attention to detail, forethought, and a process-driven approach to the business and the pitch, you will be far more likely to get the funding you need. If, on the other hand, you pitch before you have addressed your own internal issues, you may never be able to pitch to that investor again.

How to build a pitch deck that will get you funding

It can be tempting when creating a pitch deck to tell a potential investor every… single… statistic you have about your company finances. Research shows that 23% of a pitch session is spent on the financial slides. Because so much of the focus is on the financial return from an investment, it’s easy to get sucked into a dry presentation of the details of your company’s current financials.

That’s not going to get you funding.

Don’t misunderstand, a detailed understanding of your company’s inner workings is essential to success, but telling an emotionally resonant story is likely to get you much farther in a pitch session than presenting a market watch-like report packed with graphs, numbers, and stats.

So what does a successful pitch deck look like?

There are elements that you have to include such as:

Your Company Statement: this should be short sweet and to the point: “Book rooms with locals, rather than hotels.” the rule of 5 is to explain it to me like I’m 5 years old (steer clear of vague value props and industry jargon here).

The Problem: Again, keep this practical and avoid long, wordy slides. Remember the people you pitch to are also… people. “You want to feel at home, even when you’re away from home.”

The Market Share: How much can the investor expect to make is largely dependent on the size of the market and market saturation. “The US alone has 44+ million travelers per year.”

The Solution: So what are you going to do about it? This is where you get to shine! *cue the Rocky theme music.

Competition: Who else is out there, what market share do they control?

Traction (or Validation): If you’ve got some traction that’s a great element to add (many successful decks include this in the Business overview). If you don’t have traction yet, what validation have you gotten that your idea is worth the time you’re putting into it?

Strategy: What startup business model are you using, what’s your plan, and how will you get there if they invest? You do the thinking, they do the funding; don’t ask them to do your job.

The Ask: Know what you want, and ask for it. If you’re clear on your structure, goals, and potential, the number will be obvious, don’t beat around the bush or ask them to come up with this figure.

Conclusion: Drive it home! This is the cherry on top; the bow on the present. With all the above information, here’s the upside, the vision, let them feel what it will feel like when you win together.

Building the kind of pitch deck that is appealing while being clear that you have the structure, discipline, and stick-to-itiveness to carry the venture through takes time and effort. Start with an ideation session. Bring together your most creative and most analytical minds in one room, and start to build the scaffold of your message. If you only invite the creatives, you may miss important data that validates your concept. If you only bring the stats team, you may miss the big picture storytelling aspect (and it may come out aesthetically unappealing **ugly**).

Take inspiration from successful pitch decks:

Some great examples can be found on Slideshare for companies such as Square, Airbnb, Mint and more

Practice, Practice Practice…

You don’t do this every day so you’re going to need practice. Run through your pitch deck until you feel like you’ll die if you go through it one more time. And then do it one more time. The actor Anthony Hopkins says he reads a script 100 times before showing up on set. If he can do it, you can too!

As you rehearse your pitch you’ll find sticking points, areas you’ve overlooked. Go back to the drawing board and work those kinks out. As long as this process is, it’s worth it when you don’t have to sit in the uncomfortable space of having an investor point out gaps to you in the pitch session.

Listen to Feedback

Feedback is essential, so ask for it. Ask your Rotary Club if you can present to the group, talk to your PRoVisors, EO, YPO, or other leadership forum if you can pitch them, and then take anonymous feedback and address the concerns without ego. Of course, your company is your baby, but you have to be able to hear about weaknesses from allies before you present to potential investors.

Bring in the Pros

The truth is, you may do this once or twice in a career – there are professionals who will collaborate with you to bring to bear their years of experience to make you better, faster. There’s no need to reinvent the wheel. At GrowthPath Partners, that’s what we do; we bring years of experience to the table to help you build the kind of pitch that supports investment in your company.