Cultural Due Diligence and M & A in the Wake of a Pandemic

What insights does the Covid-19 pandemic provide regarding how to refocus cultural due diligence to ensure successful firm integration in mergers and acquisitions (“M&A”) transactions? The question seems particularly pressing considering a number of prominent planned acquisitions have been canceled since the advent of the pandemic. Perhaps most notably, on March 31, 2020, Xerox Holdings Corporation terminated its proposed $32.85 billion hostile acquisition of HP Inc. A few months earlier, friendly merger negotiations between the two companies stalled because the companies could not agree on terms for the exchange of confidential information necessary to assess the terms of any deal. Although a number of business experts suggested Xerox and HP were too culturally different to secure a successful fit, Xerox nonetheless anticipated $2 billion in gains based in part on the synergistic integration of the combined companies’ different approaches to sales operations. After initially moving ahead with a hostile takeover, however, Xerox ultimately announced that logistical concerns related to the pandemic made fully assessing the combination impossible. Ensuring proper deal pricing, structure, and anticipated post-merger value remains inextricably linked to the ability to conduct robust due diligence related to firm integration. The inability of Xerox to move forward in its acquisition of HP, however, reveals that the pandemic makes essential due diligence tasks extraordinarily difficult. This short article attempts to identify the new challenges facing effective cultural due diligence in the wake of the Covid-19 pandemic and to suggest key due diligence strategies to make post-merger integration more successful. Part I briefly identifies the problems the pandemic creates for conducting cultural due diligence in M&A transactions. In light of those logistical hurdles, Part II suggests some new strategies to ensure a sufficiently robust cultural due diligence process necessary for post-merger success. Part III discusses some important implications of embracing those strategies, including cost, changes to deal structure, and post-merger planning. The article concludes that although the pandemic should not prevent effective cultural due diligence in M&A transactions, the pandemic might change the very notion of what corporate culture entails going forward