To assess culture and its alignment in an M&A process, HB Global's President and CEO Bob Whalen says for his company, it starts with what their culture is.

"We're a very mission, vision and core-value-oriented business," Whalen said during the 2023 Pittsburgh Smart Business Dealmakers Conference. "And so, first and foremost, we need to know who we are as we're assessing the culture of any business that we're looking to acquire."

While part of that assessment means asking explicit questions about the target's culture, it's more about evaluating every aspect of the business through the whole due diligence process.

"We're really looking at every conversation and seeing how consistent, what the team is communicating and is the culture of that business aligned with us." he says.

They're not looking for people to be exactly aligned with HB Global's culture from the outset, he says, but they want them to be focused on some of the same things that HB Global is focused on so they're not dealing with two cultures that are going to fight against each other.

"We have found through 20-some acquisitions, our culture has evolved over time because of the businesses that we've made part of ours, in what I think of as a very positive way," Whalen says. "It's challenged us to rethink some of our core beliefs and how we go about it and what we do. And so, for us as a business, it's more about looking at the entire due diligence process as an evaluation and how consistently that business articulates what their culture is."

One of the company's core values is around team, so they'll ask very specific questions in diligence about the team and how it interacts. But more importantly, he says they're watching every individual during their interactions to try to determine if they are team-oriented individuals — are they thinking about the team first, or is that just lip service?

"It's always been really important to me in a company that I'm part of that we not only have a good schtick about what we are, but we live it," he says. "One of the best compliments we get at the end of an acquisition process is, you guys have been so consistent from the very start — what you told us in the first meeting is what you are. And so that's what we shoot for and that's what we're looking for as we ask our questions about culture and what we're trying to find in a business."

As it relates to culture, Whalen says they're big believers in following their gut as they make their determination on fit. Sometimes, with their actions or words, targets make it clear that the cultures won't mesh. But other times, it's not so easy.

"We put our mission, vision and core values out there for the world to see what we're about, not unlike when you're interviewing prospective employees," he says. "They're trying to get the job. And we have the same; when somebody is talking to us, they really want to sell the business to somebody, so they've done their research and they're looking at that. We're aligning what we hear in those conversations and over time."

He says there are examples in the company's past where their gut told them that a target was a great company to acquire, and it played out like that. And there are examples of their gut giving them warning signs and they ignored them, and they got exactly what they ignored. Through lessons learned from those experiences, they've walked away from an acquisition relatively far into the process when their gut feeling was that it wouldn't be a good cultural fit, leaving a sunk cost of hundreds of thousands of dollars already invested into the deal process.

"You tell yourself through the whole process you're open-minded to getting information to walk away. Well, it gets really, really hard when you've put so much into an acquisition," Whalen says. "And we did walk away from a really big deal and good deal, from a lot of respects, but we just weren't going to take the risk on the culture side. And who knows how that would have worked out, if it would have been what we thought. But I do think we learned to be disciplined to listen to that gut."

But just as acquirers are judging the target's team, Whalen says acquirers should recognize that the employees they bring on in a deal are going to be judging the acquirer's actions relative to what they say every single day.

"If you say one thing and you do something different, it's going to create a lot of problems for you almost in any situation, but certainly how we're going about deals," he says.