Organizational Culture in M&A: Strategy Follows Behavior

The phrase attributed to Peter Drucker has become a cliché: "culture eats strategy for breakfast." Those who know me know I don't like clichés. In this case, however, the problem isn't the phrase itself. It's the lazy way it's used.

Organizational culture isn't a value written in the website footer or an emotional speech at the annual convention. Culture is what the company tolerates, what it rewards, what it repeats, and what it protects when no one is looking. Even when the buyer's check has already cleared.

And in M&A, this can weigh much more than the spreadsheet suggests.

What organizational culture means in practice

Organizational culture is the set of habits, incentives, and behaviors that truly determine how a company operates. It manifests in how decisions are made, how errors are handled, how goals are pursued, and how people are promoted (or dismissed).

The true culture emerges in difficult choices.

Does the company claim to value collaboration but promote those who work alone? Does it say it wants innovation but punish any mistakes? Does it seek profitability but only celebrate revenue growth? Does it aim for professionalization, but all significant decisions still go through the founder?

Culture isn't the pretty phrase on the plaque in the reception area. It's repeated behavior.

Carolyn Taylor, in Walk the Talk, reminds us that a cultural journey requires time, emotional investment, and should not be initiated as a hasty reaction to external pressure. I completely agree. Culture doesn't change by decree or by hiring a consultant the day before due diligence.

It doesn't seem an exaggeration to say that, of the three most used words in corporate pitches — innovation, excellence, collaboration — at least two are pure fantasy in a good number of companies.

When the problem isn't the strategy

Many companies, when facing stagnation, quickly conclude they need to change their strategy. They change slogans, hire consultants, hold off-sites at a countryside inn, and return with a new plan and a colorful PowerPoint.

Sometimes, they really do. But in many cases, the problem isn't in the written strategy. It's in the culture that hinders execution.

There are founders who claim to want to professionalize management but refuse to relinquish power. There are companies that talk about meritocracy while retaining people based on historical loyalty, not performance. There are companies that say they want margin but in practice reward volume — because those who hit revenue targets might get invited to the CEO's barbecue, while those who hit margin targets remain anonymous.

The strategy said one thing. The culture dictated another.

Guess who won?

In Brazil, the Saraiva case is a prime example. The company, owner of one of the most respected brands in Brazilian retail, watched the market change, digital grow, and Amazon advance — yet continued to bet on a model that its internal culture had defended for decades. When it finally tried to reinvent itself, it was too late. The strategy even existed. The culture didn't follow.

The Magazine Luiza case, however, goes in the opposite direction. When Frederico Trajano took the lead in the digital strategy, the transformation only progressed because the internal culture was effectively reoriented — it wasn't just talk. "Lu" ceased to be a catalog character and became a symbol of a company that sees itself as technological. The culture drove the strategy. And the strategy delivered.

Founders create culture, for better or worse

Companies are born with the qualities and flaws of their founders. In the beginning, this is often a huge competitive advantage. Agility, business acumen, courage, customer proximity, and informality are extremely helpful in the early years.

But what helps a company grow to a certain point can prevent it from advancing to the next stage. Steve Jobs used to say it was better to cultivate smart people than to give orders. Ironically, he himself took years to put this into practice — and Apple only became Apple after that.

The centralization that once provided speed becomes a bottleneck. The informality that solved problems turns into disorganization. The personal trust that replaced controls becomes a risk. The founder who was once the engine also becomes the handbrake.

I don't say this as a criticism. It's almost a law of business life. Those who recognize it open their eyes. Those who deny it end up paying — whether through reduced profit or a discount on valuation.

Read more: How to sell a company: preparation, price, and anxiety.

Culture and M&A

In M&A, culture appears before, during, and after the transaction. And in each of these moments, it carries different weight — but it always carries weight.

Before a sale, culture affects valuation and risk perception. A company dependent on operational heroes, with low delegation and fragile processes, tends to be seen as riskier. Even if the EBITDA looks good. Even if growth is in double digits. A sophisticated buyer knows that what they are buying is a future capacity to generate cash — and future capacity largely depends on how the company functions when the founder takes a vacation.

During the due diligence, culture emerges in the quality of responses, the consistency of data, the attitude towards problems, and the willingness to disclose risks. A company that provides information piecemeal, is slow to respond, and changes numbers with each new spreadsheet version is inadvertently revealing how it operates internally. And it might be lowering its own price as it speaks.

After the closing, culture becomes even more evident. It's during post-M&A integration that the buyer discovers how the company truly makes decisions, holds accountable, communicates, and reacts to change. It's when the pretty talk of the courtship phase meets the reality of marriage. And at that point, either adjustments are made, or a lot of money is lost.

Read more: Transparency in M&A: Hiding problems often proves costly.

Culture shock after closing

Many acquisitions seem rational before closing and become difficult afterward.

The buyer sees synergy, scale, geographical expansion, and commercial gain. Everything looks good in the presentation. But, in practice, they encounter resistance, talent loss, communication breakdowns, incentive clashes, and incompatible leadership styles.

A highly corporate company can stifle an entrepreneurial one with excessive controls. A very informal company might annoy the buyer with a lack of basic management rituals. A team accustomed to quick decisions can become frustrated by lengthy approvals. A consensus-driven culture might suffer under overly centralized leadership.

Consider the history of international mergers. The Daimler-Chrysler case became a classic in business schools precisely for this reason. On paper, it made perfect sense. In practice, Germans and Americans couldn't reconcile management styles, decision-making paces, and hierarchical views. Billions of dollars later, the outcome was separation. It wasn't a lack of strategy. It was culture.

In Brazil, we've seen something similar in integrations between family businesses and private equity. The fund arrives with governance, committees, metrics, and a meeting schedule. The family business operates on lunch decisions, intuition, and the owner's personal touch. When these two worlds don't understand each other, there's friction. And friction is expensive.

None of these clashes are necessarily fatal. But all of them need to be anticipated. Before signing, preferably.

The problem is assuming that post-M&A integration is just about organizational charts, systems, and financial synergy. It's not. It never has been.

Culture also affects valuation

Sophisticated buyers might not use the word "culture" all the time, but they constantly evaluate cultural signals. Believe it.

They observe whether the company responds clearly, whether managers master their own numbers, whether information is consistent across departments, whether the founder lets other people speak in meetings, whether there's real autonomy within the team, and whether problems are handled naturally or swept under the rug. All of this, without having to ask.

Studies conducted by consulting firms such as KPMG and PwC consistently show, year after year, that cultural and integration issues are among the main causes of value-destroying acquisitions. It's not a lack of planning; it's a failure to understand the human element.

Not even the Info Memo best-prepared in the world, with colorful charts and a persuasive narrative, can hide a bad culture from serious due diligence. The buyer will find out. The only question is when.

All of this affects risk perception. Risk perception affects price.

Read more: Company Valuation: When the Numbers Become a Trap.

How to Diagnose Culture

I don't want to encroach on the territory of HR professionals, who do this methodically. But, in management and M&A, some questions greatly help in understanding a company from the inside:

• Who really makes the important decisions?
• Which behaviors are actually rewarded?
• What problems are typically hidden from upper management?
• Do people openly disagree in meetings or only in the hallway?
• Do managers know their own numbers, or do they look to others?
• Are goals management tools or just a show for the board?
• Does the founder delegate, or just announce that they have delegated?
• Does the company learn from mistakes, or look for scapegoats?
• Are customers happy, or just trapped?
• Is new talent integrated, or just tolerated?

These questions say a lot about a company. Sometimes, they reveal more than the balance sheet figures.

At Percepto, when we redesign management processes and routines, we always try to understand the culture before proposing a tool. The same process can create discipline in one company and bureaucracy in another. Context is key. Always.

Culture outlives contracts

There's a recurring illusion in M&A: that a contractual clause resolves cultural clashes. It doesn't.

You can write in the SPA that the seller remains CEO for 24 months, that there's a non-compete clause, that there's an earn-out tied to metric X, that there's a shareholders' agreement with clear governance rules. All of this is important. All of this helps. But none of this changes how people behave when the buyer's email arrives demanding a report that no one at the target company understands the purpose of.

A earn-out poorly formulated in a hostile cultural environment becomes a source of litigation, not alignment. I know of cases where a seller sued a buyer, claiming that the post-closing environment was set up to sabotage the achievement of targets. And I've seen buyers claim that the seller manipulated figures to guarantee payment. Guess the root of the conflict? Almost always, a clash of cultures.

Regulation helps, but it doesn't create culture. The Brazilian Corporate Law (Law No. 6.404/76), CVM resolutions, and governance rules consolidated by the IBGC provide the framework. The muscle that brings the company to life, however, is behavior. In other words: culture.

The role of the M&A advisor

An advisor on a transaction cannot limit themselves to calculating multiples, drafting Info Memo, mediating meetings, and writing clauses. That's the bare minimum. They need to deliver more.

A good advisor understands culture. They read signals. They anticipate clashes. They talk to the founder about what they are truly willing to give up — and what will cause conflict even after the contract is signed. They talk to middle managers. They observe the environment. They sense the atmosphere.

I am convinced that this cultural understanding, gained even during the preparation phase for a sale, is one of the highest value-added services an M&A advisor can offer. Because it's what differentiates a transaction that merely closes from one that truly thrives.

And, it's worth noting that, most of the time, this is precisely what the seller most underestimates.

Culture doesn't replace strategy

Culture doesn't replace strategy. But it determines whether the strategy has a chance to get off the ground.

In M&A, ignoring culture is dangerous because the transaction doesn't end at the signing. Not even at the closing. The acquisition needs to work afterwards. And "afterwards" means continuously.

At Biz Invest, we are increasingly convinced that good M&A processes need to look beyond price, contract, and due diligence financial. Culture, management, and execution capability are also part of the value. Perhaps the most enduring part.

The strategy might look good on PowerPoint. But behavior dictates the outcome.