Cultural fit and post-merger integration in banking M&As

The intense concentration process taking place in the financial systems has attracted substantial attention from stakeholders and academics. The impact of M&A on the value creation and efficiency/effectiveness improvements of banks involved appears, on the whole, disappointing and it is still hard to create benefits for customers. Management literature points to the difficulties of governing a post-merger integration process and recognizes the importance of corporate culture for explaining success. In fact, cultural clashes could, on one hand, generate conflicts and have negative effects on the timing and effectiveness of the post-merger integration process and, on the other hand, could influence the motivation and turnover of individuals. Set in the Italian banking industry, this paper proposes a framework, applied to a representative sample of cases (about 78.2 percent of market share, based on total assets), for assessing cultural similarities of actors involved in M&A transactions. Corporate culture is measured using an ethnographic approach focused on language as its special artefact. The assessment is based on the definition of some key concepts that are relevant for the banking industry (i.e., competencies, competition, customer, disclosure, human resources, innovation, and risk) and on a text-analysis model applied to a corpus of reference texts produced by the surveyed banks three years before the transaction. The elaboration of data uses Wordsmith 4, a text analysis software developed by Oxford University. The underlying assumption of this work is that the failure of M&A transactions does not depend only on errors made before the deal, concerning strategic and organizational analysis, but rather on the procedures for the implementation of the various phases that follow the conclusion of the operation, as well as the capacity of management in dealing with the complexity of the operation and with the problems of integration [Shojai (2009)]. An especially important problem is the presence of areas of conflict between the cultures of the different firms, which can constitute one of the main causes of failure. This work aims to create a model for assessment of the cultural compatibility of the banks involved in M&A transactions, with subsequent application of the model to real case studies.