South African M&A deals: the blind spot
M&A due diligence tends to focus heavily on financials, legal compliance, and market position. The most successful and profitable dealmakers, however, also give serious attention to company culture, due to the risks and rewards created by the people within the organisation being acquired. The Culture Killers Report highlights that nearly 20% of employees struggle to face work daily because of toxic cultures. These toxic environments often lead to domino effects – one exit can set off multiple departures as team cohesion breaks down. The time to hire takes, on average, three months, which means businesses may be suffering a two-month inefficiency period between departures and replacements.

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Ironically, the harshest cultural critics are often those with long tenure and senior roles, who are precisely the key leadership and strategic talent buyers want to retain. This presents a significant risk to leadership value and organisational stability. Poor culture correlates with abysmal retention rates; nearly all employees in toxic environments leave within 15 months, while the average ROI on an employee is typically only realised between six to 12 months. Under these circumstances, acquisitions can appear less like lucrative investments and more like costly liabilities that drain resources.

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Money alone can’t fix culture
A common response is to inject capital and appoint a new Chief Executive Officer (CEO) or managing director (MD) to lead the acquired firm, hoping new investment and fresh leadership will spark a turnaround. Yet the Culture Killers data reveals that almost half of employees identify poor communication, lack of motivation, leadership trust and insufficient coaching as major leadership failings. Without addressing these root causes, financial investment is unlikely to translate into productivity gains or improved talent retention, especially where new leaders do not have trust capital.

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Furthermore, replacing a CEO or MD alone does not necessarily solve cultural issues deeply embedded within the organisation. Entrenched behaviours, attitudes and feelings about the company persist far beyond leadership changes. It is entirely possible to invest millions yet lose the talented individuals and competitive edge that originally made the business valuable.

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Culture as a core due diligence metric
For M&A to succeed from both strategic and commercial perspectives, culture due diligence must be as comprehensive as financial audits, as many cultural factors are quantifiable in monetary terms. This entails detailed evaluation of leadership styles, employee sentiment, communication clarity, 360-degree feedback, retention, absenteeism, hiring, and training data.

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The 5th Discipline report underscores that companies with engaged leaders and supportive cultures retain their talent longer. Nearly all respondents rating their culture 4/5 or higher reported strong retention beyond 15 months, which translates to three to nine months of additional ROI. Conversely, those who remain solely for compensation or job security tend to rate culture poorly and are more inclined to leave when better opportunities arise. Notably, pay and benefits were less commonly cited as reasons for leaving; the truth remains that people leave people.

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Practical steps for M&As
Culture integration is notoriously complex, yet embedding cultural considerations throughout the M&A process can dramatically improve outcomes:

 

• Culture audits: Beyond financial due diligence, asking employees what they tell friends about working at the company reveals important cultural insights. Third-party culture assessments encourage candid feedback and uncover gaps early.

• Leadership assessment & investment: Conducting 360-degree reviews and online performance evaluations identifies leadership strengths and development needs.

• Leadership enablement: Training leaders in emotional intelligence, effective communication and coaching enhances their ability to inspire and retain teams through transitions.

• Alignment workshops: Facilitating sessions to unify teams around shared mission, values and operational practices fosters cohesion post-merger or acquisition.

• Measurement & management: Setting clear KPIs linked to engagement, innovation, productivity and career development not only boosts retention, but aligns culture with business goals.

• Transparent communication: Maintaining open channels about upcoming changes and providing forums for genuine feedback builds trust and reduces resistance.

• Tailored integration plans: Recognising that culture cannot be “one-size-fits-all,” integration plans must adapt to different departments, experience levels and functions.

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The bottom line: culture drives profits
Almost half of employees surveyed desire better communication and inspiring leadership, which the report identifies as essential for retention and productivity. Investing in these areas leads to lower recruitment costs, heightened engagement and improved returns – precisely what shareholders seek after a deal.

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Ignoring culture means embracing a high-risk investment where multi-million-rand acquisitions could backfire.
For South African companies targeting significant ROI in renewable energy M&A, culture is not merely a “soft” factor or “PR buzzword”; it is a critical commercial lever. Collaborating with specialists who can transform culture data into practical, financially tangible strategies unlocks enduring impact, agility and market resilience.

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Before deciding to buy, merge, or invest capital in a net-zero economy business, it is essential to understand the culture being acquired, and ensure the readiness to lead, nurture, and invest in the people who will drive sustainable profits.

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Within South Africa’s evolving business landscape, mastering the culture equation is where authentic, lasting financial value begins.

To access the report by 5th Discipline, follow this link: https://the5thdiscipline.com/home/access-the-culture-killers-report/  

Taylor is the CEO & Founder | 5th Discipline