Master Thesis Almos Mikesy PMBA 20 22 EI

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Human and cultural aspects in due diligence of M&A transactions
Thesis · October 2022

DOI: 10.13140/RG.2.2.16922.52162
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WIRTSCHAFTSUNIVERSITÄT WIEN
Vienna University of Economics and Business
Master's Thesis
Human and cultural aspects in due diligence of

Title of the Master Thesis:
M&A transactions
Author (last name, first

Almos Mikesy
name):
Student ID number: h12012319
Degree program: Professional MBA Entrepreneurship & Innovation
Supervisor (first name, last

name): Assoc. Prof. Dr. Peter Keinz
I, Almos Mikesy, hereby declare that:
1. I have written this master's thesis myself, independently and without the aid of unfair
or unauthorized resources. Whenever content has been taken directly or indirectly
from other sources, this has been indicated and the source referenced. I am familiar
with the regulations specified in the Directive on Plagiarism and Other Types of
Academic Fraud in Academic Theses.
2. This master's thesis has not been previously presented as an examination paper in this
or any other form in Austria or abroad.
3. This master's thesis is identical with the thesis assessed by the examiner.
Date: the 29th of June 2022

-----------------------------------------------
Signiture
Master Thesis – Almos Mikesy Professional MBA Entrepreneurship & Innovation 2020-2022
Abstract
A large percentage of the M&A transactions fail to deliver value for the shareholders.
According to several statistics and studies, human and cultural factors are the main contributors
to the failure of many M&A deals. Nevertheless, these aspects are usually overlooked in the
due diligence process. Moreover, compared to its importance, little attention has been given by
both researchers and practitioners so far.
This study aims to find answers to what role the human and cultural aspects play in the due
diligence (DD) process of M&A transactions, which factors influence its application, and what
are the different opinions and attitudes regarding these aspects among Hungarian practitioners.
Semi-structured interviews and qualitative research (by applying the so-called Q methodology)
were conducted to answer the research questions. The findings confirmed that human and
cultural evaluations are generally neglected in local (Hungarian – Hungarian) and international
transactions. Three main factors were identified to influence the role and the magnitude of
human and cultural aspects in the due diligence process: 1. Awareness, 2. Availability of time,
and 3. Skill and competence. Among Hungarian practitioners, three main different opinion
groups were detected regarding the human and cultural aspects of the due diligence process: a
group with (1) strategic attitude, (2) sceptical attitude, and (3) risk-averse attitude. Awareness-
raising of the impact of the human and cultural factors, new methodologies and tools, and the
availability of high-quality service providers could foster the majority of practitioners to focus
more on these factors in the pre-closing phase of the transactions.
A guideline was created and presented in the Thesis To promote human and cultural due
diligence.
1
“Mergers are like marriages. They are the bringing together of two individuals. If you
wouldn’t marry someone for the ‘operational efficiencies’ they offer in the running of a
household, then why would you combine two companies with unique cultures and identities
for that reason?” (Simon Sinek)
2
Table of contents
Abstract ..................................................................................................................................... 1
Table of contents....................................................................................................................... 3
List of Figures ........................................................................................................................... 4
List of Tables............................................................................................................................. 5
Abbreviation ............................................................................................................................. 6
1. Introduction ....................................................................................................................... 7
2. Literature review............................................................................................................. 11
2.1. Scope and objective of the due diligence ............................................................... 11
2.2. Due diligence process............................................................................................... 13
2.3. The economic value of due diligence ...................................................................... 14
2.4. Human and cultural due diligence ......................................................................... 16
2.4.1. Objective and methodology of human and cultural due diligence .............. 18
2.4.2. Data and information sources for human and cultural due diligence ......... 24
3. Methodology .................................................................................................................... 26
3.1. Objective ................................................................................................................... 26
3.2. Methods .................................................................................................................... 26
3.3. Semi-structured interviews ..................................................................................... 27
3.4. Q methodology ......................................................................................................... 34
4. Findings ............................................................................................................................ 59
4.1. Recommendation ..................................................................................................... 60
5. Discussion......................................................................................................................... 65
5.1. Implications .............................................................................................................. 65
5.2. Limitations and future research ................................................................................. 66
References ............................................................................................................................... 67
Appendix ................................................................................................................................. 69
3
List of Figures
Figure 1: Main Factors for the failure of M&A deals according to M&A practitioners
worldwide, 2021 (source: Bain & Company, Statista)............................................................... 8
Figure 2: The main areas to cover in human capital due diligence (source: Mikesell and Wood,
2016)......................................................................................................................................... 21
Figure 3: Human and cultural due diligence process model (source: Dörrenbächer and
Witzmann, 2015, p. 7.) ............................................................................................................. 22
Figure 4: Cultural due diligence framework (source: Denison and Ko, 2016, p. 65.) ............. 24
Figure 5: The topics of human and cultural due diligence at a global IT company (source:
Author's edition) ....................................................................................................................... 34
Figure 6: Six main steps of Q study (source: Author's edition) ............................................... 36
Figure 7: Field of expertise (all respondents) (source: Author's edition) ................................. 39
Figure 8: Number of transactions (all respondents (source: Author's edition) ........................ 40
Figure 9: Tool for division of the statements (source: Author's edition) ................................. 40
Figure 10: Q-sort grid (source: Author's edition) ..................................................................... 41
Figure 11: Differences between Factor A and Factor B (source: Author's edition) ................. 51
Figure 12: Differences between Factor A and Factor C (source: Author's edition) ................. 52
Figure 13: Differences between Factor B and Factor C (source: Author's edition) ................. 55
Figure 14: Collection of information for human and cultural due diligence (source: Author's
edition) ..................................................................................................................................... 63
Figure 15: Communication plan for due diligence process (source: Author's edition) ............ 64
4
List of Tables
Table 1: Respondents in the semi-structured interviews (source: Author's edition) ................ 27
Table 2:: Statements with converted factor scores four three factors (source: Author's edition)
.................................................................................................................................................. 42
Table 3: Factor correlations (source: Author's edition) ............................................................ 44
Table 4: Consensus statements (source: Author's edition) ....................................................... 46
Table 5: Further consensus statements (source: Author's edition) ........................................... 47
Table 6: Top 10 least consensus or disagreement statements (source: Author's edition) ........ 48
Table 7: Statements with factor scores for Factor A (source: Author's edition) ...................... 49
Table 8: Distinguishing statements for Factor A (source: Author's edition)............................ 50
Table 9: Statements with factor scores for Factor B (source: Author's edition) ...................... 53
Table 10: Distinguishing statements for Factor B (source: Author's edition) .......................... 54
Table 11: Statements with factor scores for Factor C (source: Author's edition) .................... 56
Table 12: Distinguishing statements for Factor C (source: Author's edition) .......................... 57
5
Abbreviation
M&A Mergers and Acquisitions
DD Due diligence
HCDD Human and Cultural Due Diligence
NDA Non-disclosure Agreement
SPA Sales and Purchase Agreement
DDR Due Diligence Review
R&D Research and Development (or Design)
IP Intellectual Property
6
1. Introduction
Merger and acquisition (M&A) is an essential element of the strategy of many corporations
around the globe to realise growth and achieve competitive advantages. Nevertheless, according
to many statistics and reports, most of the transactions do not create any shareholder value.
Dörrenbächer and Witzmann (2015) cited a McKinsey analysis which calculated that around
66-75% of the deals were unsuccessful in reaching their goals, while approximately 40% of the
M&A transactions could not even generate any return on their initial capital investment.
According to a Harvard Business Review article, 70-90% of the M&A transactions proved
unsuccessful (Kenny, 2020). In addition, Harding and Rouse (2007) pointed out that close to
66% of those firms engaged in merger transactions lost market share three months after the deal
was closed, and this percentage increased to 90% after nine months.
This contradiction can be explained by the bias among the main decision-makers, which is well
demonstrated by one of the KPMG studies (although it is more than twenty years old).
According to the survey conducted in 1999 (KPMG, 1999), 82% of the participants claimed
that the deals they executed were successful. However, these answers were based on subjective
evaluation, as less than half of the companies conducted a back-testing or review process. In
contrast, according to the KPMG’s calculations, barely 17% of the transactions added value to
the merged companies, 30% did not generate any differences, and 53% destroyed shareholder
value.
These surprisingly high numbers attract increasing attention from both the academic and
practitioners’ sides attempting to explain the reasons behind that phenomenon. Despite the
macroeconomic and (business) uncertainty caused by the COVID pandemic, the global volume
of the merger and acquisition transaction hit a new record level of USD 5 trillion in 2021,
exceeding the previous highest level of USD 4.55 trillion in 2007. However, the significant
failure rate associated with that massive volume generates enormous costs for the shareholders
and other stakeholders, like employees or suppliers (Dörrenbächer and Witzmann, 2015).
Nevertheless, most research focused only on strategic and financial aspects until recently. Patel
(2018), for instance, concluded that since the financial crisis in 2008-09, buyers became more
cautious about the evaluation of the potential target companies. Consequently, due diligence in
7
general (with the traditional scope: legal, finance, taxation) has also been considered more
seriously. As these factors could not deliver comprehensive answers in many cases, new aspects
(like human and cultural aspects) have been scrutinised.
One of the most common objectives of carrying out an M&A transaction is to exploit possible
and supposed synergies. Synergy means that the combined business and the separate assets
could be utilised more efficiently and generate more profit. However, transactions fail to realise
these advantages in many cases because people who should implement these synergies are not
considered during the pre-investment period (Mikesell and Wood, 2016). One common mistake
is that if two corporations work “in the same industry, sell similar products, and are structured
alike, they must do things the same way” (Mikesell and Wood, 2016, p. 40).
There is clear evidence of the immense impact of human and cultural challenges on the success
of M&A transactions. Patel (2018) pointed out that most of the M&A transactions (55-77%)
did not generate the expected results because of the “cultural clash” manifesting in the post-
closing phase. According to Bain & Company, a global management consulting firm, 41% of
the practitioners worldwide claimed “poor cultural fit/lack of trust” as the main factor
contributing to the failure of M&A deals (Figure 1).
Figure 1: Main Factors for the failure of M&A deals according to M&A practitioners
worldwide, 2021 (source: Bain & Company, Statista)
8
However, among the other factors highlighted by the professionals, other directly or indirectly
human and cultural factors could also be found:
- Lack of strong senior management commitment (36%);

- Governance structure/decision rights were unclear or lacking (32%);
- Poor lifetime management led to weak performance, ineffective due diligence (22%);
- Unable to retain key talents (20%).
Nevertheless, the investigation of human and cultural aspects in the M&A literature (and among
the practitioners) has not been neglected entirely. The cultural clash phenomenon and its
consequences on the companies’ performance have been recognised since the early 1990s
(Denison and Ko, 2016). Accordingly, more research and publications were devoted to that
topic. Moreover, professionals also consider these effects increasingly important in the post-
closing integration phases (Denison and Ko, 2016). However, the recognition that this subject
should be carefully analysed in the pre-combination (due diligence) phase still remained more
or less to be seen. In that stage, the goal would be to analyse and understand all the challenges
that human and cultural aspects might cause after closing the deal in the integration phase.
Furthermore, desirably, they could be anticipated and mitigated as much as possible.
As researchers and practitioners become aware of the importance of the human and cultural
issues in the integration phase and understand their impact on the success of the transactions, it
can be seen as the common ground on which they can be convinced to pay more attention to
them already in the due diligence process. “However, a methodology on “how” to do the
cultural due diligence is not as clear as the importance of such effort.” (Denison and Ko, 2016,
p. 69). This thesis intends to contribute to that topic by analysing the situation in Hungary and
articulating some recommendations based on the findings.
This study is organised around the following research questions:
(1) What role do human and cultural aspects play in the due diligence process of M&A
transactions?
(2) Which factors influence the role and the magnitude of the examination of human and
cultural aspects in the pre-closing period?
(3) What are the different opinions and attitudes regarding the human and cultural aspects
in the due diligence process among Hungarian practitioners and professionals?
9
While the literature review was done without any geographical restrictions, the empirical
research focused on the Hungarian market. The reason was twofold. Firstly, no similar analysis
has been carried out for the Hungarian market so far. Secondly, the Hungarian M&A market
(both in terms of local, i.e. Hungarian – Hungarian deals, and also cross-border transactions)
can be categorised as an emerging market. It has been developed largely over the last ten-fifteen
years. Consequently, the tools and methodologies are still in the development phase.
Nevertheless, the main findings of that study might be valid for other markets as well.
The thesis is divided into four main sections. Firstly, the relevant literature is presented and
reviewed. This chapter covers the general overview of due diligence in academic literature
firstly. Then it consists of a review of the papers specifically on the human and cultural aspects
of the due diligence process in order to collect the relevant findings and conclusions on the
scope, objective and methodology from a theoretical point of view. The third chapter contains
empirical research. In my study, I conducted several semi-structured interviews with highly
experienced professionals in M&A transactions in the Hungarian market. Based on the
conclusions of the interviews and the literature review, qualitative research (by applying the so-
called Q methodology) was carried out among Hungarian practitioners in order to analyse
different opinions and attitudes toward the topic on a broader public. In the last section, I
summarised the findings of the study and presented a guideline for human and cultural due
diligence.
10
2. Literature review
2.1.Scope and objective of the due diligence
In M&A transactions1, the acquiring firm, the merger team or the investors confront information
asymmetry for at least two reasons (Wangerin, 2019):
(1) The target firm management certainly disposes of more and better information about all
the risk factors related to the target firm’s business, technology, or other resources.
Moreover, the target company’s current management generally takes advantage of that
situation because they are motivated either by keeping their position and thus presenting
a brighter picture of the acquired firm or by the higher valuation and price (as in many
cases, they also have some stake in the company, or the seller incentivises them in some
ways).
(2) An evident uncertainty exists about the target company’s (or the merged two companies)
future business performance. This factor is partially connected to the (1) point and the
acquiring firm’s concepts and plans for the transaction. This latter could differ
significantly according to the type of the investor: whether it is a financial or strategical
investor. Generally, financial investors rely more on the target firm's current capabilities
and inherent opportunities (and thus, in that case, high quality and comprehensive due
diligence are inevitable). In contrast, the strategical investors might have other (e.g.
synergic) reasons to buy.
1
In practice, the difference between mergers and acquisitions might be significant. A merger is an agreement
between two companies (equal partners) to form a new combined entity (Investopedia). In contrast, an acquisition
is when one entity (i.e. company, fund) acquires a majority stake in another organisation to exercise control over
it. Acquisitions can be hostile or friendly, depending on the acquirer’s motives and the target organisation’s
attitude. For my thesis topic, I refer to M&A transactions as a comprehensive category and make distinctions only
when necessary. Harding and Rouse (2007) differentiate between the financial and the cultural acquirer. The latter
is (not always the same as the financial acquirer) who significantly influences the new structure (after the M&A
transaction).
11
The most appropriate and typical solution to bridge that gap between the two parties (seller and
buyer) is to carry out an analysis. This investigation allows the acquirer to earn and check all
the relevant information of the target company regarding the prior, the current and the projected
business performance (Wangerin, 2019).
The pre-acquisition period when the acquiring company undertakes an investigation of the
target firm to make a reasonable business decision is generally called due diligence (Patel,
2018). Although it does not exist a single, widely accepted definition of this process, broader
and narrower versions exist in terms of objective, scope and content. The goals of conducting
a DD, according to most of the definitions, are to:
(1) Facts (hard data) checking and confirmation;

(2) Revealing problems;
(3) Uncovering hidden assets and opportunities
(4) Supporting the negotiation process and underpinning the valuation.
The followings are the specific focus points or areas of examination that appear in most of the
definitions (Fargus, 2020, Reichard, 2006, Patel, 2018, Denison-Ko, 2018, Mullins et al., 2007,
Bhagwan et al., 2018):
(1) Assets and liabilities, financial statements;

(2) Corporate and legal structure, contracts;
(3) Taxation;
(4) Technology and intellectual property (if reasonable);
(5) General analysis of the target company’s business products and business models;
(6) Investigation and evaluation of possible business opportunities
However, besides the similar points appearing in many definitions, a common missing point
could be identified: the lack of non-financial (and legal) aspects. Patel (2018) highlighted that
in many transactions, due diligence is considered exclusively an analysis of the financial data
(balance sheet, profit and loss statement) and legal aspects (sometimes being complemented by
some taxation or technical aspects). Consequently, business decisions are made almost solely
on financial reports and legal analysis, and other important factors are not considered. Patel
(2018) claimed that DD is regularly mistaken for an audit. However, typical audit processes
aim to investigate whether the company complies with the accounting regulations. In contrast,
12
the due diligence objective is to analyse all the projects and assets that could generate revenues
or liabilities that have not yet appeared in the official statement but might have a significant
impact on the value and the predictable future performance of the target firm.
Patel (2018) also pointed out that due diligence is often considered a box-ticking exercise.
Therefore the author recommended broadening the scope to cover (among others) market and
competitor analysis. This focus typically appears in the so-called commercial DD with the aim
to conduct market analysis and the target firm’s competitive position (Reichardt, 2006).
The research made by Patel (2018) partially confirmed the misunderstanding about the
objective and scope of the due diligence. Some participants in the survey conducted by the
author defined DD as a “confirmatory exercise” because the decision to execute the transaction
is generally already made, and due diligence is only a mandatory task. The goal is to perform
the analysis only because of the administrative requirement of a proper M&A transaction
process. These results also reinforced that professionals often confuse DD with a simple
financial analysis.
Nevertheless, Patel (2018) distinguished between traditional and strategic due diligence. While
the former focuses more on the past and current risks and other factors affecting the deal. The
latter is extended by evaluating the future opportunities and potential synergies that could
contribute to the deal’s success. According to Patel (2018), the strategical DD should also
contain non-financial factors (such as organisational fit or HR capabilities).
2.2.Due diligence process
Besides the scope, an important aspect is how the due diligence is carried out. Wangerin (2019)
developed a clear structure of the DD process, with three main stages, according to its timeline,
the purpose and the source of information investigated:
(1) The preliminary due diligence covers collecting and assessing publicly available data
about the potential target company.
(2) If the confidentiality agreement is signed, meaning both parties decided to get on with
the transaction, the so-called due diligence review (DDR) begins in parallel with the
negotiations of the terms of the transaction. The DDR aims to gather and analyse
13
confidential information by requesting documents, visiting the sites and conducting

interviews with key employees (i.e. internal statements, reports, surveys). If it is
possible, for instance, the transaction is not hostile.
(3) Even though an acquisition agreement is signed, it is still not a binding obligation and
does not mean that the deal will be closed certainly. The next step is transactional due
diligence (TDD) when the acquirer teams have expanded and large-scale access to all
relevant information. The principle of this phase is to verify the accuracy of all data and
information provided all over the process and confirm (or complete) the conditions in
the agreement. Based on the results of this chapter, the decision must be made whether
the deal is terminated or completed (or if relevant new information arises, it can also be
renegotiated).
2.3.The economic value of due diligence
Considering that due diligence is more than a box-ticking exercise, this analysis process would
create value for the investors, but at the same time, it is generally costly and time-consuming.
Researchers generally compare (and calculate) the benefits and expenses to analyse their
economic value.
By studying the economic value of conducting due diligence in M&A transactions, Wangerin
(2019) found a clear connection between the weaker post-merger performance (and lower
equity value) and the (less) time spent on conducting the due diligence before the transaction.2
In contrast, he did not find evidence that more due diligence would result in better post-
2
As Cumming and Zambelli (2017) pointed out that by considering all the costs associated with the transaction,
acquirers (PE managers) often put pressure to finish the DD process as soon as possible and outsource some parts
of it to external service providers (lawyers, accountants, etc.) as in many cases professionals do not consider that
a more thorough due diligence would contribute to the performance later.
14
acquisitional performance. In M&A transactions, many factors (for instance, time pressure and
cost constraints3) push the acquirers to limit the scope of the investigation.4
To decide on the scope and depth of the investigation before the transaction, the acquirer team
should consider and compare the potentially arising (direct and indirect) costs and the value of
the expected results.
In contrast to the ‘one-sided’ results of Wangerin (2019), Cumming and Zambelli (2017)5 found
a clear and significant (positive linear) connection between the time spent on due diligence and
the post-acquisitional performance of the target firm. The authors found that on average, the
private equity funds spent seven weeks performing due diligence. However, an additional four
weeks of analysis doubled the financial performance on average (calculated in the 3-year
average of return on assets, ROA).
Cumming and Zambelli (2017) also analysed another aspect: the DD process might be
performed either by internal teams or by mainly external consultants or accounting firms.
According to the authors’ results, the target firm’s post-acquisition performance tends to be
better when most DD is performed internally. Nevertheless, they did not find evidence of the
opposite direction relationship since when the majority of DD is delegated to external service
providers (for instance, lawyers, accountants, and management consultants), the authors did not
find a correlation with the financial performance of the acquired company. This conclusion
sheds light on existing agency problems (and costs) stemming from performing the DD
externally. A potential problem of involving external service providers in the DD process is
their limited knowledge of the principal’s (acquirer) skills. In addition, this lack of information
on their side could lead to imperfect conclusions about the opportunities or threats regarding
the target firm and the potential combination’s future.
3
Time and cost constraints are present in each transaction. However, these limitations are more significant when
the investigation goes beyond the traditional focus areas (legal, tax and financial) or the acquisition is hostile. The
latter case might limit the DD scope to desktop research. As only limited data is available, it makes the deal highly
speculative, especially when the legal framework or the technology is unknown to the acquirer (Patel, 2018).
4
For the analysis, Wangerin (2019) calculated the number of days spent between the different milestones of a
transaction (such as signing the NDA, the acquisition agreement, closing date).
5
For measuring the performance, Cumming and Zambelli (2017) used two different key indicators: 1. Return on
Assets (ROA) and 2. operating profit margin (EBITDA /Sales), both over the last three years.
15
2.4.Human and cultural due diligence
Based on my literature review, cultural aspects more dominantly appeared in the academic
research. However, other human or HR-related aspects cannot be neglected either. In this study,
I do not differentiate between them, only when it is necessary.
According to statistics, human and cultural problems are among the main reasons behind failing
M&A deals (Figure 1). Harding and Rouse (2007) stated that two-thirds of the new
combinations had lost their market share after the first three months of completing the merger,
while this percentage increased to 90% after nine months. They indicated that human capital-
related issues (for instance, poor cultural fit or resignation of key employees6) were among the
main contributors. As a result, the authors recommend conducting human due diligence to
prevent this kind of loss.
Weber (2020) also pointed out the complex connection between the cultural differences or
similarities and the success of the M&A transaction. He found empirical evidence that better
cultural fit results in better performance after the deal is closed. However, the author mention
also that other studies showed that cultural diversity (cultural distance or differences) might
promote synergies and great business outcomes. Some argue that cultural fit is important, while
others disagree. However, it is also not totally clear what cultural fit means, and it can differ in
each transaction, but it can also be different in the case of different business units in the same
acquired company (Weber, 2020). 7
Nevertheless, academic papers typically used to analyse the due diligence process and scope
from a post-transactional performance point of view, as the performance of the M&A
transactions used to be assessed almost exclusively based on strategic, business and financial
achievements. However, in M&A transactions, incompatible corporate cultures proved to be
6
According to a survey conducted by Pwc (Pwc, 2020), the retention of key employees after a transaction has
become significantly more complicated over the last decade. While in 2010, the majority of the respondents
reported “significant success” in that respect, this percentage plummeted to merely 10% in 2019.
7
The cultural distance and all the challenges it imposed on the success of M&A transactions could be significantly
higher in cross-border deals. Besides the different corporate cultures also, the country-specific characteristics
should be dealt with. Weber (2020) mentioned several examples in which cultural differences played a significant
role (e.g. Daimler Benz and Chrysler, Bank of America and Merrill Lynch, Volvo and Renault, or Google and
Nest).
16
one of the primary reasons behind later failure (Dörrenbächer and Witzmann, 2015) and turned
out not to be less risky than financial, business or market incompatibility. The incompatibility
typically emerges during the integration process when the two organisations (their employees)
start to work together. The result could be highly different on a wide scale: from absorption
(when one company’s culture adjusts to the other’s culture8) to holding structure (practically no
or minimal integration). Consequently, many recent papers attempt to explain the success and
primarily failures from a cultural (and human point of view). Furthermore, these aspects spill
over into the due diligence literature and research (Dörrenbächer and Witzmann, 2015).
The author cited Robert Carleton, CEO of Vector Gropu, who stated: “Cultural Due Diligence
will rarely be a critical factor in whether to ‘do the deal’ or not, but rather a significant factor
in making the deal work” (Dörrenbächer and Witzmann, 2015, p. 5.).
Nevertheless, Dörrenbächer and Witzmann (2015) also pointed out that while there is a growing
number of research and papers about human (management) and cultural aspects in the
implementation period, much less attention is paid to including these aspects in the DD phase.
According to a literature review by Fargus (2020), the importance of human aspects was widely
acknowledged among DD practitioners about three decades ago, besides the traditional
approach of conducting financial, legal and tax investigations. It is in line with the findings of
Denison and Ko (2016). They pointed out that cultural due diligence has increasingly received
more attention over the last decades. At the end of the 1990s, less than half of the C-level
managers considered cultural aspects during an M&A transaction (Denison-Ko, 2016).
While most of the literature claims human and cultural aspects as important factors, in the
research of Costa et al. (2021), some respondents have not experienced its significant relevance
over decades. However, the authors concluded that their reactions only proved the “existence
of cultural negligence” (Costa et al., 2021, p. 30), one of the main causes of the high failure
8
Surprisingly, the acquired company does not adjust to the acquirer’s culture in every case, as Harding and Rouse
(2007) pointed out that the financial and cultural acquirer is not necessarily the same company in a given
transaction. The latter is (not always the same as the financial acquirer) who significantly influences the new
structure (after the M&A transaction). The role of the cultural acquirer depends on the goal of the acquisition. If
the goal is to achieve economy of scale or have new customers, thus the financial and cultural acquirer will be the
same company. However, suppose the ambition, for instance, is to retain the talents of the target company or adopt
its organisational culture. In that case, the target enterprise is more likely the cultural acquirer.
17
rates in M&A transactions. It is also important to note that the respondents neglecting culture
and human aspects hold positions in banks and large corporations with specialised M&A teams
and do not have experience in integrating organisations.
2.4.1. Objective and methodology of human and cultural due diligence
As it is rather neglected, there is no widely acknowledged and applied definition, scope or

methodology for human and cultural due diligence.
Weber (2020) proposed a clear definition of cultural DD: “In the simplest terms, Cultural Due
Diligence (CDD) is a diagnostic process conducted to ascertain the degree of cultural
alignment or compatibility between companies that are party to a merger or acquisition. [...]
CDD should be viewed as a mandatory step to maximise post-merger or acquisition
organisational effectiveness and profitability.” (Weber, 2020, p. 26).
Based on his literature review, Dörrenbächer and Witzmann (2015) concluded that cultural due
diligence is a deep investigation of the corporate cultures, aiming to reveal risks for the
transaction and the post-combination period and it should not have secondary importance
besides the traditional DD scope.
By reviewing the literature, Dörrenbächer and Witzmann (2015) highlighted three main points
which should be considered when the human and cultural analysis is conducted:
(1) It is more than just an analysis; ideally, it should be a thorough assessment of both
parties’ cultures;
(2) It should reveal the potential risks that might be occurring during the post-combination
integration phase;
(3) It should be part of the due diligence process and not play an inferior role to the other
‘traditional’ investigation area – especially due to the (2) point.
Despite the increasing attention from both the researcher and practitioner side, widely
acknowledged methods to perform such an analysis have not yet been developed, and in most
cases, it remained a highly ambiguous, qualitative examination. Berghofer (2022) highlights
that unlike traditional due diligence elements (financial, legal, and taxation), in the case of the
18
cultural DD, it is impossible to set up fixed structures and dimensions because of the specialities
of each company9.
The quality and the depth of human due diligence implicitly depend on the nature of the
transaction (e.g. friendly or hostile). Whereas it is valid for the whole DD process, a hostile
acquisition or merger makes it very difficult to obtain sensitive and substantive information
regarding human capital (Fargus, 2020).
The motives of the transaction and the strategic objectives after the closing significantly impact
the pre-combination phase. The depth of the due diligence should reflect the level of integration
and/or the influence the involved parties intend to achieve with the deal. The higher the
integration is aimed, the wider the possible range of cultural problems might occur. If the
acquiring company intends to gain close control over the target organisation, it would
automatically result in more interactions and conflicts (Weber, 2020).
Based on the study of Harding and Rouse (2007), the essence of conducting human due
diligence is to make a “go / no go” decision, and if the result is positive, based on its results, a
thorough integration plan could be designed. All the information gathered throughout this
procedure allows the acquirer to create a human capital balance sheet consisting of “the assets
and liabilities of the company in terms of its people” (Harding and Rouse, 2007, p. 129).
According to Harding and Rouse (2007), when an acquiring company starts the human due
diligence, the deal’s purpose should be defined first. Then, which culture and which
organisational culture will be dominant after the transaction. After answering the main
strategical questions, Harding and Rouse (200) suggested the following areas be investigated
as part of the human DD:
- Profile of the company’s organisation: this analysis should focus on the hard data like
organisation structure, job descriptions, decision-making process etc.
9
Berghofer (2022) summarised four frameworks frequently applied in cultural due diligence: (1) Organizational
Health Index (McKinsey), (2) Organizational Culture Index (Human Synergistics), (3) Denison’s Organizational
Culture Model, (4) Panda’s Cultural Due Diligence Framework.
19
- Decision-making diagnosis of the organisation: besides the official structures and

processes, the investigation should focus on how the decisions are made and executed
in practice.
- In-depth inquiry: its aim is to explore the assets and capabilities of the different business
units to understand their function, role and goal.
- Cultural assessment: as a final step, the acquiring company should try to analyse the
target company’s culture by gathering information from inside and also outside
stakeholders (partners, suppliers, competitors, and customers). However, this step is
possible in most cases when the deal is already announced.
However, these human DD technics could be applied only in a non-hostile environment. In case
of a hostile transaction, the acquiring team should rely on publicly available information
(reports) and other external information sources (like interviews with former employees,
customers and other stakeholder groups).
Nevertheless, supposing the human aspects are also involved in the DD process, in many cases,
they focus only on one side of the coin (Fargus, 2020). Like a red flag report, the investigation
targets only the weak points of the company’s human resources (e.g. high turnover, union
relationship), which could negatively impact the enterprise value. On the other hand, an
extended approach is recommended: exploring intrinsic values (e.g. innovative organisational
culture, technical expertise) that represent added value to the target organisation.
The objective of expanding the traditional DD scope over human and cultural aspects is
generally two-fold (Denison and Ko, 2016):
(1) They assess the potential cultural gap and HR weaknesses between the target and the
acquiring company.
(2) They could support the design of the implementation phase.
By defining the cultural DD, Berghofer (2022) also highlights its objective of revealing risk
factors and their essential role in the post-combination integration phase. However, Berghofer
(2022) stated that cultural aspects rarely make the deals impossible but are one of the critical
factors in making the deal work.
20
The organisational structure and the decision-making process are the two important elements
appearing in most studies. However, there is only a little empirical evidence for the outcomes
of such investigations, and because of the lack of practicality, there is a need for improving and
creating a commonly recognised methodology to assess cultural differences.
The authors highlighted that only limited information (like employee turnover data or employee
surveys) is included in the typical due diligence process. Nevertheless, these are only one part
of the whole picture, and other overall information about human capital remains hidden in the
financial numbers. For this reason, Mikesell and Wood (2016) recommend employing HR
experts over the due diligence procedure.
Based on the article of Mikesell and Wood (2016), HCDD should cover at least ten main topics
(Figure 2).
Figure 2: The main areas to cover in human capital due diligence (source: Mikesell and
Wood, 2016)
Recruiting Benefits Compensation Payroll
Performance
Organizational Decision
HR Support (“skill
Design Making
mapping”)
Training Technology
The authors emphasise that this approach allows the acquirer to prepare for the implementation
phase (for instance, if an increase in the turnover rate is expected, incentives like retention
bonuses could be introduced on time). Moreover, such an investigation could support the
communication strategy to answer and react to the employees’ main fears.
21
The human and cultural due diligence process should collect and evaluate both qualitative and
quantitative data (Dörrenbächer and Witzmann, 2015). The off-the-shelf models focus more on
quantitative data (hard data). At the same time, the so-called customised HCDD process
involves more qualitative methodologies (like interviews or surveys). Dörrenbächer and
Witzmann (2015) presented a standardised and simplified process covering both qualitative and
quantitative analysis (Figure 3).
Figure 3: Human and cultural due diligence process model (source: Dörrenbächer and
Witzmann, 2015, p. 7.)
In the cultural due diligence process proposed by Dörrenbächer and Witzmann (2015), the first
step is a self-assessment of the acquiring company. The aim of this phase is that the acquirer
analyses its own culture (the strength and the weaknesses). While ‘culture’ might be highly
hypothetical, especially if we compare it with financial or legal facts, several methods exist to
assess and measure it. Denison and Ko (2016) concluded that four main focus points could be
highlighted based on the relevant literature: mission, consistency, involvement and
adaptability.10 The authors also argue that the cultural aspects might influence the negotiation
10
Mission refers to an organisation’s purpose and direction and reflects a focus external to the organisation and on
stability. Consistency refers to shared values and efficient systems and processes; it reflects an internal and stable
focus. Involvement concerns the personal engagement of individuals within the organisation. It demonstrates a
focus on the internal dynamics of the organisation and flexibility. Finally, adaptability refers to the ability to
22
process likewise. Understanding the target company’s culture could decrease uncertainty and
promote the desired results.
Based on the self-assessment, there is a clear basis to evaluate the possible difference between
the target firm and the acquirer (steps 2-3). Based on the results, if the process goes on, a more
detailed analysis is the next step (step 4), followed by the evaluation of the management and
the expected retention ability of the key employees (steps 5-6). When there is an agreement
about the deal and the transaction be announced, the due diligence team might have greater
access to the relevant data and information, and in many cases, a more thorough investigation
is carried out, mostly repeating steps 3 to 6.
By reviewing the relevant literature, Dörrenbächer and Witzmann (2015) highlighted some key
factors which could foster human and cultural integration after closing the transaction. (1)
Speed of the process: although there are no generally accepted numbers for an optimal speed,
the so-called first 100 days concept is a well-known approach. The first few months could be
the best period when people are still open to change, but rumours, mistakes, or ‘transformational
fatigue’ have not negatively affected their motivation. (2) Trust: because of the uncertainty
caused by the transaction, people distrust the new structure or their company’s future (this
phenomenon could appear both in the acquirer and the acquired organisation), and their
negative attitude could hinder the post-acquisition procedures. The solution could be proactive
communication about the future and goals to (re)build trust. (3) Communication: one of the best
ways to manage employees’ expectations and decrease their feelings of insecurity is to apply
constant formal and informal communication. (4) Retaining key players: an M&A transaction
always creates some level of uncertainty. The top performers would leave first if they do not
see the future of the (combined) organisation and their position bright. Moreover, they are who
could find a new job quick and easily. A strategy should be developed before closing the
transaction on retaining and motivating these key players. Moreover, the key elements of this
strategy should be prepared according to the findings during the pre-combination analysis.
understand what the customer wants, to learn, and change in response to demand; the focus of adaptability is
external and flexible.
23
2.4.2. Data and information sources for human and cultural due diligence
One major challenge to running proper cultural (and human) due diligence is the limited access
to (existing) data. During the negotiation period, human capital-related information could not
be collected legally in many cases. While collecting soft data by conducting interviews with
the management and other key employees is also not easy to manage during the negotiation
phase. Moreover, if a hostile acquisition is considered, it is almost impossible. For this reason,
Denison and Ko (2016) recommend a data-driven framework having a gradual approach by
starting with cautious steps and focusing primarily on the existing data (Figure 4).
Figure 4: Cultural due diligence framework (source: Denison and Ko, 2016, p. 65.)
By applying this framework, the first step is to collect all the relevant and available (open
source) information from social media platforms. While collecting social media data and
information is a new trend and worth applying, you must be careful to analyse data and reach a
conclusion. This information primarily reflects customers’ feedback, while the human and
cultural analysis focuses on employees and inside culture. However, there are platforms (for
instance, glassdoor.com in the US) where employees review their current or previous
employers. Collecting data and information from social media platforms could support the due
24
diligence team by focusing on relevant (problematic) cultural issues and comparing competitors
and other similar organisations.
Based on this framework, the second step is to conduct interviews with external stakeholders
(such as customers, suppliers or former employees). These interviews play a similar role to the
social media investigation (identifying strengths and weaknesses to focus on critical issues)
while remaining discrete without an explicit contact with the current management or other key
persons.
The third step is usually made once the due diligence process is officially launched. Besides
analysing and reviewing HR data and documents (such as attrition data, compensation packages
or performance reviews), employee surveys usually bear important information.
The fourth step is to conduct internal stakeholder interviews with the management team and
other key employees. As they are already informed about the planned transaction, the interviews
should focus on assessing the target company’s culture to identify problems and most
significant strategic (human and cultural) challenges regarding the forthcoming M&A
transaction. Denison and Ko (2016) recommended organising these interviews around the
already mentioned four key pillars of the cultural assessments (mission, consistency,
involvement, and adaptability).
The final step is to synthesise all the information gathered over the above-presented process.
Data collection might be hard (as mentioned earlier), but making sense of the obtained data and
information might pose another challenge. The best way to do it is by using a framework (i.e.
the Denison model) as a guide to finding structured answers to the main questions of a given
transaction.
However, the focus on the human and cultural aspects does not come to an end with the closing.
They must be “on the table” throughout the implementation and integration phase. Another
important topic is communication, its message and timing. A well-targeted and organised
communication could help overcome many typical post-merger problems and prevent the so-
called “merger syndrome”, when bad communication could cause have a significant impact on
the post-acquisition performance, serious integration problems and lead to undesired business
consequences or even failure.
25
3. Methodology
3.1.Objective
This study aims to explore the practitioners’ experience and their attitudes and opinion about
the human and cultural aspects in the due diligence process of the M&A transaction in the
Hungarian market.
The objective of the research was to analyse
- what role the human and cultural aspects play in the due diligence process of the M&A
transactions in the Hungarian market.
- which factors influence the role and the magnitude of the examination of human and
cultural aspects in the pre-closing period.
- what are the different opinions and attitudes regarding this topic among Hungarian
practitioners and professionals?
3.2.Methods
To answer the research questions, I applied two different methods: 1. Semi-structured

interviews, 2. Q-methodology. The semi-structured interviews could provide answers to the
first two research questions, while the third one was answered by the findings of the Q-
methodology analysis.
The advantage of conducting interviews was that the topic is complex and under-analysed, so
the respondents’ opinions can be easier explored in the framework of personal conservation.
An additional advantage was that the interviewees could be encouraged to think over their
whole career, challenge and discuss their main conclusions during an interview. The advantage
of the interviews was also that they could provide new ideas to the researcher.
The advantage of the Q methodology is that it combines the strengths of the qualitative and the
quantitative methods. It aims to analyse the attitude or the opinion of a particular group of
participants. The advantage of the Q method over the traditional surveys or the (semi-
26
structured) interviews is that it allows examining a group’s perspectives by applying a

quantitative tool (factor analysis).
3.3.Semi-structured interviews
Semi-structured interviews were conducted with five highly experienced professionals in M&A
transactions in Hungary. However, they all have been involved in many cross-border
transactions as well. All of them had more than ten years of, and one interviewee had even close
to thirty years of experience. The main criteria for selecting the participants were:
Three out of the five interviewees (Table 1) were M&A transaction advisors with an experience
in more than 150 deals each. In contrast, the other two participants worked for a global company
that is very active in mergers and acquisitions. They take part in a dedicated team (which is
responsible for the European market and, horizontally, responsible for all people-related issues
in M&A transactions).
Table 1: Respondents in the semi-structured interviews (source: Author's edition)
Number #1 #2 #3 #4 #5
Age (years) ~50 ~40 ~35 ~40 ~30
Number of 250-300 250-300 150-200 15-20 8

transactions
Role in Advisor Advisor Advisor Member of Member of

transactions the dedicated the dedicated
team team
Company Consulting Consulting Consulting Global IT Global IT

firm firm firm company company
Gender Male Male Male Female Male
27
The structure of the interviews covered the following topics11:
(1) Due diligence scope,

(2) Performers of due diligence,
(3) Main trends,
(4) Beck-testing,
(5) Human and cultural due diligence.
Research question #1: What role do human and cultural aspects play in the due diligence
process of M&A transactions?
Due diligence scopes
According to the M&A transaction advisors, the clients increasingly consider due diligence and
its findings important. Especially larger companies and institutional investors are more
conscious in that regard. Nevertheless, in most cases, only the traditional due diligence scope
(legal, finance, taxation) is performed. However, there is an increasing demand from the client-
side to carry out environmental and technology (IT) assessments, and as a new phenomenon,
there is also a need to extend the scope to ESG and sustainability aspects in some transactions.
One of the advisors involved in that research pointed out that in many cases, the financial due
diligence is carried out first, and if deal-breaker issues are not revealed, the legal and taxation
DD are performed after. The interviewees from the global software company confirmed the
same trend (due diligence is considered more consciously): while some years ago at that
company, the whole M&A process was unstructured and disorganised, since some years ago, a
dedicated transaction team have been set up to handle all the deals (including the due diligence
process). Today the M&A transactions are much better organised, there are responsible for each
important element of the process (finance, legal, HR etc.). Interestingly, the IT-related
departments are still not involved in the process as the main goal is to acquire complementary
companies (mainly advisory businesses) to develop an end-to-end customer journey.
11
For the guideline for the semi-structured interviews, see Appendix 1.
28
The due diligence scope is very rarely extended to human and cultural (or other ‘soft’) aspects.
One interviewee claimed that at the beginning of his career (in the second half of the 1990s and
early 2000s), human due diligence was generally part of the due diligence process, but it
disappeared over the last twenty years. However, he could not have named the exact reasons.
According to his experience, the human and cultural aspects are rather assessed intuitively
(“good cooperation during the negotiations” by Respondents #2), with no HR advisors
involved or specific methodologies applied. The other advisors could recall only a few cases
out of 250-300 transactions they participated in when human and/or cultural due diligence was
conducted.
The participants were asked whether the cross-border and the local Hungarian deals (where
both the buy and sell-side is a Hungarian entity) differ in any respects. They all agreed that the
DD process and findings are treated more seriously in cross-border transactions. While in the
local deals, it is very usual that the clients do not even read the reports and the findings, and
they do not deal with them in the transaction agreements (e.g. in the indemnities). The general
attitude is “we know all the risks, and the price reflects them” (by Respondents #1). However,
without considering the DD findings and calculations, the decisions about the transactions are
based on only “gut feelings” or intuition. On the other hand, in cross-border transactions, the
clients apply the main findings to shape the deals and the terms. However, one of the
interviewees claimed that these differences do not stem from the fact that the deal is cross-
border, but because more experienced companies engage in cross-border transactions, they also
have more experience in DD. However, according to the participants, there is no difference at
all in human and cultural aspects. Not even in the cross-border deals, these aspects are
considered.
Time is highlighted as the primary constraint to performing proper due diligence by all
interviewees, and they said that the general attitude is to carry out the due diligence as soon as
possible. And they all agreed that taking enough time for the pre-closing investigation would
be useful for both the seller and buyer. One of the interviewees claimed that in the local deals,
he experienced a harmful attitude: “We know each other. Why should we devote too much time
and effort to conducting due diligence.” (by Respondents #3)
29
However, cross-border transactions differ in that regard: in that cases, usually, there is more
time to carry out the due diligence and close the deal; “otherwise, there is no deal” (by
Respondents #1).
One of the transaction advisors mentioned that when he is a sell-side advisor, he always
recommends including a communication plan into the due diligence scope. This plan consists
of what, when, and how to communicate to the specific stakeholder groups during the
negotiation period. This is a funnel-shaped communication strategy: more and more
stakeholders are informed as time goes on.
Similarly, communication is treated more consciously in the global IT company’s M&A

activity. One year ago, the company hired a new manager responsible for the M&A
communication: a communication strategy is developed for each transaction, and these
strategies include a “people communication plan” as well. The main goal is that people in the
target company understand what will happen, the milestones, and how these transactions affect
each individual in the company. The main aim is to retain the talents as the company mainly
acquires human resources instead of other types of assets.
Performers of due diligence
According to the transaction advisors, the traditional due diligence scope is almost 100%
outsourced to external service providers in most cases. Generally, the acquirers or investors do
not have enough capacity or skill to conduct a DD correctly. In a few cases, an internal team
makes a preliminary valuation of the target company. However, in many cases, the advisors’
mandate covers also the validation of that calculations. In the larger or more experienced
companies and institutional investors, a dedicated M&A team usually selects and hires external
advisors. They communicate (coordinate) their work, making the whole process more
professional, smoother and more meaningful.
At the global IT company, most of the work around the transactions used to be done primarily
internally. However, as the number of transactions is set to increase, more and more external
advisors are involved in the processes (but not in the human and cultural field).
30
Main trends
Some of the new trends were already mentioned in the first section about the due diligence
scope (ESG, sustainability, technological and environmental assessment). One of the
transaction advisors also reported an increasing demand from the client-side for calculating all
the revealed risks.
Interviewees from the global IT firm pointed out that the COVID period significantly impacted
their company’s M&A activity. Due to the global pandemic, a massive number of potential
target companies started to collapse. At the same time, an unexpectedly huge interest appeared
in the market to acquire the best ones. Because of the fierce competition, time became one of
the main constraints. Consequently, the human and cultural DD was reduced to only three basic
questions (mainly about the contracts or benefit packages). There was not possible to meet the
target company’s management and key employees in person (in many cases even online)
anymore. In their view, the quality and depth of the human and cultural assessment in the M&A
transactions have dropped suddenly to the level of three to four years ago.
Back-testing
The advisors could not have reported any information on the back-testing of the due diligence
process or results. The reason might be that they are usually not involved in the process after
the deal is closed due to their specific role in the transactions. One advisor pointed out that the
situation, in some cases even worse, deals are often made based upon (sometimes wrong)
tradition (the attitude of “we do M&A transactions in that way” regardless of what is the target
company, in which sector it operates or any other specialities). “So the same mistakes happen
all the time” (by Respondents #1).
On the other hand, the interviewees from the global IT company reported positive development
in that regard. Since a new manager was appointed two years ago to be responsible for
integration, they have been focusing more on systematical and structured feedback to
implement the former lessons into the new deals. It helped the recognition of the human and
cultural aspects in the due diligence process as the management realised that failures,
unsuccessful business or significant challenges could have been traced back to human and
31
cultural issues. However, surprisingly, this recognition also led to understanding how essential
their current employees, status and prospects are.
Research question #2: Which factors influence the role and the magnitude of the examination
of human and cultural aspects in the pre-closing period?
Human and cultural due diligence
According to the transaction advisors, human and cultural aspects are not involved generally in
the due diligence process.12 There is no demand for HCDD on the client-side, and generally,
the transaction advisors raise that topic neither. In a few cases, when there is a purposeful and
detailed implementation (or post-closing) plan, human and cultural questions are included (for
instance, how to replace the CEO who is close to the retirement age).
Moreover, in that respect, there is no difference between the cross-border and local deals based
on their experience. Usually, two types of decision-makers exist: (1) do not consider this aspect,
(2) involve their own HR department to make a quick check and a red-flag report. This latter is
more common among those companies that plan an increased level of integration. Generally,
in that cases, the HR department is asked to examine some HR-related documents or assist in
some meetings with the management or the key employees.
In the few cases when this aspect arose, the clients’ demands are covered in the other part of
the due diligence as followings, but no separate HCDD is performed:
- Analysis of the contracts from a labour law perspective (e.g. non-compete clauses) –
legal DD;
- Assessments of the qualifications, management track records, motivation systems, and
performance reviews – commercial DD;
12
One of the advisors told an interesting case when a foreign software developer company wanted to acquire a
Hungarian IT company. They were surprised by the very low compensation packages and very low level of
turnover. As they did not understand the reasons, they conducted a survey and revealed that the team spirit was so
strong and important in that company that employees did not want to leave. It helped the acquirer in how to set the
focus during the integration period.
32
- Examination of the turnover rate, labour costs, age (e.g. average time to retirement) –
financial DD.
According to the transaction advisors’ opinion, the situation reminds them of a ‘chicken-egg
problem’ (by Respondents #2): there is no demand for a thorough human and cultural due
diligence on the investor and acquirer side. However, there is no supply of professional advisors
either who can perform this kind of analysis. In the very few cases when external advisors were
hired to assess the human and cultural issues, they applied a complex methodology with
engagement surveys and assessment centres. However, in some cases, the target company’s
management got offended, and as it jeopardised their retention and loyalty, the acquirers did
not insist either.
However, the interviewees from the global IT company reported a positive but not linear13 trend
in that respect. One of them was hired six years ago to support the company’s M&A transactions
with her experience in human and cultural issues. She posed some human-related questions to
a C-level manager before closing the first transaction she worked on. They realised that nobody
had an answer to that question, although they enlightened the target company’s key challenges
(all the employees had been working there for less than two years, with a very high attrition
rate). Finally, they decided not to buy that company, and as a result, the management asked her
to create a due diligence checklist. Moreover, today it became general that the main human
conditions are already set in the SPA (Sales and Purchase Agreement). Typically, the human
and cultural investigation starts right after the information memorandum is ready, and the NDA
(Non-disclosure agreement) is signed. It normally includes at least one personal meeting with
the CEO and the person responsible for HR. During the investigation, they generally cover the
following nine topics (Figure 5).
13
The positive trend was broken as the COVID pandemic started, and the company’s M&A activity increased
rapidly (see in the „Main trends” section).
33
Figure 5: The topics of human and cultural due diligence at a global IT company (source:
Author's edition)
Employee contracts
(at least for the management Employee handbook Employment policy
and key employees)
Full compensation Reports and statistics:

Litigations (previous,
packages and bonus headcount, attrition,
ongoing or expected)
schemes tenure, age etc.
Employee career history

(full CVs or at least Conflicts of interest Surveys
LinkedIn profiles)
In addition, they also introduced a new earn-out scheme into the transaction agreements: besides
the financial KPIs, the headcount growth, the attrition rate and the retention of the key
employees are also fixed. However, it is still the target company that determines who the key
employees are in most cases. The next step is to change that.
Moreover, the global IT company has also recognised the importance of the cultural self-
assessment (also in general, but also from the perspectives of the M&A transactions,
integrations and further expansion). They worked out a comprehensive method and process for
that purpose in cooperation with an external advisor team, and the project was planned to launch
in Q1 2020. As the COVID pandemic started, the self-assessment project was postponed (it
might have involved interviews, assessment centres, and offline group work). Nevertheless, the
project was not cancelled and is still considered an important milestone for future merger and
acquisition deals to analyse and better understand the human and cultural challenges between
them and the potential target companies.
3.4.Q methodology
34
The application of the Q methodology is recommended when the researcher’s goal is to explore
and analyse different opinions about a topic (Plessis, 2016). The literature review and the semi-
structured interviews revealed that the researchers’ and practitioners’ approaches to human and
cultural due diligence vary on a wide range. By applying this methodology, I aim to analyse
different opinions (statements) on a broader public and explore whether different opinion
groups exist and which statements are the consensus or distinguishing factors. Finally, my
intention was to give recommendations according to these particular groups’ needs.
About the Q methodology
The Q methodology was developed almost 100 years ago by William Stephenson (Plessis,
2016, Swedeen, 2006, Hofmeister-Tóth and Simon, 2006, Szerényi et al., 2011). Originally a
psychologist and quantum physicist, Stephenson intended to examine human subjectivity. The
Q methodology does not replace but completes other (traditional) research technics like
surveys, interviews or focus groups (Plessis, 2016). The Q method is able to explore the
different opinions, value judgments or attitudes about a given topic (Fabók and Kovács, 2019).
The Q methodology can effectively complete other types of quantitative research techniques.
However, it cannot be seen as an alternative to qualitative research or surveys with big samples
where representativeness is required. Therefore the results of a Q method research cannot be
generalised to a larger population (Hofmeister-Tóth and Simon, 2006). Nevertheless, my aim
in that study was to create general statements concerning the Hungarian market and assess the
different opinions and attitudes regarding the human and cultural aspects among practitioners
and professionals.
The advantage of the Q methodology is that it incorporates the strengths of both the qualitative
and the quantitative methods. It aims to analyse the attitude or the opinion of a particular group
of participants. The advantage of the Q method over the traditional surveys or the (semi-
structured) interviews is that it allows examining a group’s perspectives by applying a
quantitative tool (“reverse” factor analysis). It is “an exploratory, inductive and deductive
methodology suitable for small populations of participants” (Plessis, 2016, p. 1.).
35
Gulácsi et al. (2011) emphasised that the classification is less dependent on the researchers in
Q methodology. Although they formulate the statements, the classification is made by the
respondents. As a result, such patterns that were previously not considered intuitive might be
explored. The participants create the preference order subjectively, which the researcher does
not influence.
The application of the Q methodology is suitable in a business and management environment

when the goal is to study different (subjective) opinions and attitudes. This methodology is
widely known and applied in certain areas such as (content) marketing, consumer behaviour,
gender specificities, environmental studies, sustainability, healthcare, public opinion or
attitudes, psychology etc. (Szerényi et al., 2011, Plessis, 2016, Swedeen, 2006).
The process of Q methodology
The application of the Q methodology (Figure 6: Six main steps of Q study (source: Author's
edition)8) consists of six steps (Plessis, 2016, Swedeen, 2006, Damio, 2016) from the collection
of the concourse to the interpretation of the results (Figure 6).
Figure 6: Six main steps of Q study (source: Author's edition)
1. Defining and
collection of the
concourse
2. Selection of the
statements (Q set)
3. Selection of the
population (P set)
4. Execution of Q
sort
5. Statistical analysis
6. Interpretation of
the results
36
Collection of the concourse
The concourse might consist of ideas and opinions in Q methodology but also images or videos
about a specific topic (Plessis, 2016). For this research, the concourse was derived from two
types of sources. Firstly, I collected opinions and ideas based on the literature review (secondary
sources). Secondly, I assembled assessments, attitudes and beliefs based on the semi-structured
interviews conducted with practitioners.
Selection of the statements (Q set)
The next step was to finalise the statements for the empirical research based on the concourse
collected. Two different options exist in Q methodology to do: (1) structured or (2) unstructured
Q sample (Plessis, 2016). The unstructured version is more flexible from a researcher’s
perspective. However, when the statements are grouped into theoretical categories, the
structured Q sample can be more representative of the concourse (Plessis, 2016).
For that research, a structured Q sample was created. Q samples generally consist of 20 to 100
statements (Gulácsi et al., 2011). In my study, 37 statements were selected. The structure
consisted of theoretical sub-categories according to my research question and the different areas
of the due diligence process (Appendix 2).
The sub-categories included :
(1) General views on the due diligence process (8 statements);

(2) Outsourcing, skills, capacities (4 statements);
(3) Due diligence scope (6 statements);
(4) Human and cultural due diligence (19 statements).
The sub-categories consisted of different numbers of statements, between 4-19. The human and
cultural DD-specific sub-category incorporated the largest number of statements because of the
focus of the research. Nevertheless, the other sub-categories were also essential to analyse the
participants’ attitudes towards the topic from a broader perspective and draw more specific
conclusions.
37
Selection of the population (P set)
In order to run the Q study, the participants in the research must be selected. Their role is to
rank-order the statements (the Q sample) according to their opinion or attitude (Plessis, 2016).
In the Q methodology, “participants are the variables” are selected because of their knowledge
or relation with the topic analysed, not randomly to represent the population (Swedeen, 2006).
The P set in this research consisted of professionals active in the M&A and other forms of
capital investment (e.g. venture capital) in Hungary. For that purpose, practitioners with
different backgrounds were selected according to the following criteria:
(1) Field of expertise (e.g. finance, legal, taxation)

(2) Role in the transactions (investor, advisor)
(3) The objective of the transaction (merger, acquisition, VC investment – investment to
finance development and growth)
(4) The number of transactions they participated in over the last ten years.
As most respondents might have different fields of expertise or played different roles, and the
objective of the transactions they participated in might have been different, they were asked to
choose the most typical one for themselves.
The respondents had a wide range of attitudes or opinions about the due diligence process in
M&A transactions and other forms of capital investments and represented all major stakeholder
groups (different types of investors and advisors with diverse professional backgrounds). An
excel file with the Q set and the so-called Q sort grid was sent to them by email with a short
guideline on how to execute the ranking (Appendix 3).
The size of the P-set, so the number of the respondents is typically between 20 and 40 (Swedeen,
2006). In that research, altogether, 33 people sent back the excel filled out, so this number fits
this requirement.
General description of the P-set
According to the answers, in terms of expertise, I created four main categories: (1) business and
strategy, (2) finance, (3) legal and (4) risk management. More than half of the respondents
38
(52%) had a financial background, 24% had a legal background, while four-four participants
(12-12%) categorised themselves as business and strategical or risk management experts
(Figure 7).
Figure 7: Field of expertise (all respondents) (source: Author's edition)
Almost two-thirds of the respondents participated in M&A transactions as an investor (or an

employee of an investment company), while 36% have been advisors. Acquiring another
company was the main objective of those transactions in which the research participants took
part, while 43% of them engaged in VC-type investments (when the primary goal of the
financial transaction is to finance the growth and the development of the target company instead
of paying off the former owners).14
The research participants had a strong experience in M&A and other types of investment
transactions, so the findings and conclusions of the analysis are based on their opinions formed
by many transactions. More than half of the respondents participated in more than twenty deals
over the last ten years, another 27% took part in more than ten deals, and only 15% of them
engaged in less than ten transactions over the last couple of years (Figure 8).
14
None of the participants indicated that the most typical objective of the transactions they participated in was the
merger of companies.
39
Figure 8: Number of transactions (all respondents (source: Author's edition)
Execution of Q sort
The participants were asked to rank the 37 statements according to their viewpoints on a scale
of -3 to +3. This ranking is called the Q sort and reflects the respondents’ opinion on the specific
statements. In order to execute the ranking order of the statements properly, each participant
was given a short instruction. Two types of sorting methods exist: (1) forced-choice or (2) free
sort. With the forced-choice methods, the participants must find the place for each statement as
the Q sort grid consists precisely of the same number of spaces, like how many statements are
involved in the research. Nevertheless, with the free-sort method, the respondents could put the
statements anywhere on the grid without restrictions (Plessis, 2016). In that research, I decided
to request the participants to follow a forced-choice method.
As a first step, it was recommended to read the statements and divide them into three categories
(disagree, agree and uncertain or ambivalent) according to the following table and mark them
with colours (red, yellow, green). They might have found more statements in one colour, but
this is no problem at this stage (Figure 9).
Figure 9: Tool for division of the statements (source: Author's edition)
The statements The statements The statements

I disagree with indifferent for me I agree with
0
40
After categorising the statements into three groups, the participants were requested to prioritise
the statements according to the predetermined structure of the Q sort grid (Figure 10). It
determined how many statements they could put into each category of the applied scale between
-3 to +3. So the participants should compare the statements to each other (within the colours
chosen) to find the statements’ final place in the Q sort grid (the guideline is in Appendix 3).
The participants had to categorise the statements in a quasi-normal distribution, which forced
them to make an accurate ranking: four statements could have a score of (- / +) 3, five statements
(- / +)2, six statements a (- / +) 1, and seven with a zero score.
Figure 10: Q-sort grid (source: Author's edition)

Evaluation table
(-3) (4 statements) (-2) (5 statements) (-1) (6 statements) 0 (7 statements) (+1) (6 statements) (+2) (5 statements) (+3) (4 statements)
Analysis
By studying the 33 Q sorts, I analysed the data using the software program PQMethod, version
2.3515 and identified three factors. In order to interpret the results and explore similarities and
differences, I mainly used the converted factors scores (Q sort values). The goal was to explain,
among others, the followings:
- What were the statements’ ranks in the specific factors, and how did they differ between
the different groups;
- Which statements showed some level of consensus,
- Which statements showed the highest level of disagreements,
- Which statements symbolised the most the specific factors (or groups).
15
http://schmolck.org/qmethod/index.htm
41
The 37 statements with their factor scores are presented in Table 2.
Table 2:: Statements with converted factor scores four three factors (source: Author's edition)
Statements with converted factor scores for three factors
No. of
Statements Factor A Factor B Factor C
statement
1. The limitation of the DD scope to legal, financial and taxation aspects is due primarily
1 1 3 1
to the time and cost constraints.
2. The human resources analysis is part of the legal DD (focusing on employee contracts,
2 0 2 0
compensation packages and employee surveys).
3. The assessment of the corporate culture is an essential part of the analysis of the target
3 1 -3 -1
company.
4. The need for a human and cultural analysis arises in many cases, but generally, there is
4 2 1 2
no time, cost or skill to run such an analysis.
5. In most cases, the main problem is the inadequate availability of good quality data and
5 -1 2 1
information to carry out a proper DD.
6. Starting a DD process is only suitable when the investor/acquirer has previously
6 0 -3 2
verified the management’s competence or has a concrete plan to replace the management.
7. The objective of the human and cultural DD is to support the implementation phase
7 2 1 -3
with its findings.
8 8. Human and cultural issues are essential primarily in the negotiation phase. -2 -1 -2
9 9. Only financial, legal, and taxation DD are necessary to close a deal. -3 1 2
10 10. The failure of M&A transactions primarily is due to human and cultural reasons. -1 -3 0
11. There is no need for human DD as new management shall be appointed after closing the
11 -3 -2 -2
deal.
12. Conducting a DD is only (time and cost) effective when it is 100% outsourced to
12 -1 -2 -1
external service providers (lawyers, accountants, advisors).
13 13. The DD process is not only a box-ticking exercise. 3 3 1
14. Thorough human and cultural DD is only necessary when an increased level of
14 -2 2 1
integration between the acquirer and the acquired companies is planned.
15. It is recommended to perform as much of the DD process/scope as possible internally
15 0 0 -1
because an analysis conducted by an internal team has advantages in the post-closing phase.
16 16. Human and cultural analysis plays an essential role in the DD process. 2 -2 0
17. Human and cultural DD is only necessary when the current owner plays an important
17 -3 1 3
role in managing the target company (there is no independent management).
18 18. The management assessment is an essential part of the analysis of the target company. 3 1 3
19. The objective of the DD is to reveal risks (primarily the “deal-breaker” issues) to make
19 3 3 3
a good decision about the transaction.
42
Statements with converted factor scores for three factors (continue)

No. of
Statements Factor A Factor B Factor C
statement
20. The main objective of the DD process is to confirm the financial, legal and taxation
20 1 2 0
facts.
21. The human and cultural aspects (findings) are rarely the critical factors in whether to do
21 2 1 -1
the deal or not, but rather a significant factor in making a deal work.
22. In special cases, besides the traditional scope (legal, financial, taxation) might be
22 3 3 1
extended to a technological or environmental assessment.
23 23. The execution of human and cultural DD is based on intuition and previous experiences. 0 0 0
24 24. The first step of a human and cultural DD process is the acquirer’s self-assessment. -1 0 -2
25. The main constraint to performing an appropriate human and cultural DD is the lack of
25 -1 0 3
good quality data and information.
26. The results of the DD process generally have an impact on the pricing and the final
26 2 2 -3
decision about the transaction.
27. The decision about the deal is made upon ‘hard data’. Soft issues like human and
27 -2 -1 1
cultural problems shall be managed after the closing.
28. Performing an objective human and cultural DD is impossible because potential
28 -2 -1 0
problems typically arise during the implementation phase.
29 29. The cost is the main constraint to performing a comprehensive DD in most cases. 0 -1 -3
30. There is not enough capacity on the investor/acquirer side to perform a DD in most
30 0 -1 -3
cases.
31. There is no relevant skillset on the investor/acquirer side to perform a DD in most
31 0 -3 2
cases.
32. The objective of the human and cultural DD is to reveal the potential “deal-breaker”
32 -1 -1 -1
issues.
33. In many cases, the information about transactions under negotiations is not shared with
33 the management and key employees. Therefore there is no opportunity to perform a 1 0 0
comprehensive human and cultural DD (i.e. interviews, surveys).
34. A comprehensive human and cultural DD could not prevent human and cultural
34 1 0 -2
problems that arose after the closing.
35 35. In most cases, time is the main constraint to performing a comprehensive DD. 1 0 2
36. The objective of the DD is to reveal the main risks before closing the deal, but it does
36 -3 -2 -1
not play any role in the post-closing (implementation) phase.
37. The decision-makers in the investor/acquirer companies generally do not need
37 -2 -2 -2
additional information over the traditional DD scope (financial, legal, taxation).
Factors
This factor analysis was run several times with a different number of factors. The main criteria
were the eigenvalues, the explained variance and the number of persons loading on each factor.
Based on these considerations, I decided to complete the analysis with three factors. These three
factors accounted for 51% of the variance.
Based on the factor correlations presented in Table 3, the three factors that emerged in that
study showed a low correlation (especially between Factor A and C and Factor B and C),
ensuring a satisfactory level of uniqueness (correlation below 0.5).
43
Table 3: Factor correlations (source: Author's edition)
Factor correlations
Factor A Factor B Factor C
Factor A 1.0000 0.4599 0.1064
Factor B 0.4599 1.0000 0.2970
Factor C 0.1064 0.2970 1.0000
Analysis of the Q Sorts
I can separate the different opinion groups and identify the most typical statements to each
factor by analysing the factor analysis results using Q-sort values and Z-scores. By applying
this methodology, I can also present the most important consensus and distinguishing
statements among the participants. It is important to highlight that the results cannot be
extrapolated to a larger population (Swedeen, 2006), so all the results can be regarded as a
detailed and statistically grounded interpretation of the professional opinion of the participants
about the Thesis’s topics. As all the participants were selected according to their professional
experience and expertise, the results can indicate well the current status of the human and
cultural aspects in the M&A due diligence processes in the Hungarian market (although it
cannot be regarded as a statistically representative result).
Area of Consensus and distinguishing
By analysing the results, I can explore consensus (similarities in viewpoints and rankings over
the factors) and distinguishing statements. The study of these particular statements is important
to identify the topics which can be interpreted as common grounds or, on the contrary, the most
dividing aspects.
I found three statements that had precisely the same Q sort values among the factors (Table 4):
- 19. The objective of the DD is to reveal risks (primarily the “deal-breaker” issues) to
make a good decision about the transaction. (high level of agreement among all three
factors)
44
- 23. The execution of human and cultural DD is based on intuition and previous
experiences. (indifferent for all three factors)
- 37. The decision-makers in the investor/acquirer companies generally do not need
additional information over the traditional DD scope (financial, legal, taxation).
(disagreement among all three factors)
By interpreting these results, I can claim that all three opinion groups agree with the ultimate
objective of the due diligence process (revealing risks) and that additional information is
generally requested over the traditional DD scope to make a well-grounded decision. In
contrast, the opinions were uniformly neutral on how the HCDDs are generally executed, and
it can be traced back to the lack of awareness about the topic among professions.
In addition, a lower level but still statistically significant consensus was found in the case of the
following statements (Table 4):
- 4. The need for a human and cultural analysis arises in many cases, but generally, there
is no time, cost or skill to run such an analysis. (agreement)
- 33. In many cases, the information about transactions under negotiations is not shared
with the management and key employees. Therefore there is no opportunity to perform
a comprehensive human and cultural DD (i.e. interviews, surveys). (neutrality)
- 15. It is recommended to perform as much of the DD process/scope as possible
internally because an analysis conducted by an internal team has advantages in the post-
closing phase. (neutrality)
- 32. The objective of the human and cultural DD is to reveal the potential “deal-breaker”
issues. (disagreement)
- 28. Performing an objective human and cultural DD is impossible because potential
problems typically arise during the implementation phase. (disagreement)
Based on these results, some additional overall conclusions can be drawn. The opinion groups
think similarly about the constraints of conducting human and cultural analysis (lack of time,
money or skill). They agreed likewise that the main objective of an HCDD would not be to find
the deal-breaker issues and recognised that there would have been a role for HCDD already in
the pre-closing investigation phase (it can be too late to focus on human and cultural aspects in
the implementation phase). However, all three factors were more or less neutral on whether the
45
DD should be carried out internally or externally. Furthermore, they were indifferent about
whether that information sharing (and its timing) would determine the opportunity of
performing an HCDD. This latter can be traced back to the lack of expertise of the respondents
in that field.
Table 4: Consensus statements (source: Author's edition)

Consensus statements (Q sort values)
No. of Factor Factor Factor
statements Statements A B C
19. The objective of the DD is to reveal risks (primarily the “deal-breaker” issues) to make a good decision about
3 3 3
19* the transaction.
4. The need for a human and cultural analysis arises in many cases, but generally, there is no time, cost or skill to
2 1 2
4* run such an analysis.
33. In many cases, the information about transactions under negotiations is not shared with the management and key
employees. Therefore there is no opportunity to perform a comprehensive human and cultural DD (i.e. interviews, 1 0 0
33* surveys).
23* 23. The execution of human and cultural DD is based on intuition and previous experiences. 0 0 0
15. It is recommended to perform as much of the DD process/scope as possible internally because an analysis
0 0 -1
15* conducted by an internal team has advantages in the post-closing phase.
32* 32. The objective of the human and cultural DD is to reveal the potential “deal-breaker” issues. -1 -1 -1
28. Performing an objective human and cultural DD is impossible because potential problems typically arise during
-2 -1 0
28 the implementation phase.
37. The decision-makers in the investor/acquirer companies generally do not need additional information over the
-2 -2 -2
37* traditional DD scope (financial, legal, taxation).
(All Listed Statements are Non-Significant at P>.01, and Those Flagged With an * are also Non-Significant at P>.05)
However, based on the approach presented by Sweeden (2006), it is worth looking at those
statements as well, which did not fall into the consensus statements statistically for finding all
the relevant consensus fields (Table 5). However, they were on the same side of the scale (agree,
neutral or disagree). Despite some differences between their judgments across the different
factors (for instance, +3, +2, +1), there was no real conflict between them either. “These
statements could serve as a point of departure for consensus building among groups
represented by the different factors” (Sweeden, 2006, p. 203.).
By applying this rationale, in my study, I can find near-consensus statements on the following
topic:
- Due diligence is more than a box-ticking exercise; its traditional scope should be
extended to specific topics (e.g. technological or environmental assessment) or even to
human and cultural issues (management assessment).
- However, the scope of the due diligence is highly influenced by the time and cost
constraints. Nevertheless, it can play an important role even after closing the deal.
Therefore it is not recommended to outsource 100% to external service providers.
46
Table 5: Further consensus statements (source: Author's edition)

Further consensus statements (Q sort values)
statements Statements A B C
1. The limitation of the DD scope to legal, financial and taxation aspects is due primarily to the time and cost
1 3 1
1 constraints.
13 13. The DD process is not only a box-ticking exercise. 3 3 1
18 18. The management assessment is an essential part of the analysis of the target company. 3 1 3
22. In special cases, besides the traditional scope (legal, financial, taxation) might be extended to a technological or
3 3 1
22 environmental assessment.
8 8. Human and cultural issues are essential primarily in the negotiation phase. -2 -1 -2
11 11. There is no need for human DD as new management shall be appointed after closing the deal. -3 -2 -2
12. Conducting a DD is only (time and cost) effective when it is 100% outsourced to external service providers
-1 -2 -1
12 (lawyers, accountants, advisors).
36. The objective of the DD is to reveal the main risks before closing the deal, but it does not play any role in the
-3 -2 -1
36 post-closing (implementation) phase.
On the other hand, by analysing the statements with less consensus, I can identify the following
topics in which the opinion groups somewhat disagree (Table 6):
- The importance of human and cultural analysis of the target companies in the due
diligence process (statements 16 and 3), whether it is only essential in specific cases
when the former owner played a key role in managing the company (statement 17);
- The connection between carrying out an HCDD and the degree of the planned
integration (statement 14) and its objective as a support for the post-competition phase
(statement 7);
- Whether the traditional DD scope is enough to close a deal (statement 9) and whether
the DD findings have an impact on the pricing (statement 26);
- Whether a general assessment of the target company’s management should anticipate
the starting of a thorough due diligence process (statement 6);
- Whether the lack of data and information is a key constraint to performing an HCDD
(statement 25);
- Whether the investors or acquirers generally dispose of the relevant skillset to carry out
a due diligence process (statement 31).
47
Table 6: Top 10 least consensus or disagreement statements (source: Author's edition)

Top 10 least consensus or disagreement statements (Q sorts)
Statements
statements A B C
25. The main constraint to performing an appropriate human and cultural DD is the
25 -1 0 3
lack of good quality data and information.
16 16. Human and cultural analysis plays an essential role in the DD process. 2 -2 0
3. The assessment of the corporate culture is an essential part of the analysis of
3 1 -3 -1
the target company.
14 -2 2 1
6. Starting a DD process is only suitable when the investor/acquirer has
6 previously verified the management’s competence or has a concrete plan to replace 0 -3 2
the management.
31. There is no relevant skillset on the investor/acquirer side to perform a DD in
31 0 -3 2
most cases.
9 9. Only financial, legal, and taxation DD are necessary to close a deal. -3 1 2
7. The objective of the human and cultural DD is to support the implementation
7 2 1 -3
phase with its findings.
26. The results of the DD process generally have an impact on the pricing and the
26 2 2 -3
final decision about the transaction.
17. Human and cultural DD is only necessary when the current owner plays an
17 important role in managing the target company (there is no independent -3 1 3
management).
Overall conclusions:
There is an openness to extend the DD scope, such as human and cultural examination among
the research participants. It can be traced back to the need emerging from the decision-makers
who generally request additional information over the traditional scope. However, they disagree
on the degree of importance an HCDD plays in an investigation
Nevertheless, there is no time, budget or skills to perform an appropriate HCDD. On the other
hand, if an HCDD is carried out, its objective should be more than only finding the deal-
breakers issue. They are more or less neutral on whether the DD should be performed internally
or externally.
Based on the findings above, the demand for investigating human and cultural aspects exists
(both on the practitioner and decision-maker side), and it can probably be performed externally
by hiring experts (at least at the beginning). However, the first and most important step should
be raising awareness of the importance of the topic and its possible overall impact (for instance,
in the integration phase) among practitioners and decision-makers who determine the time
framework and the due diligence budget.
48
Description of the different opinion groups (factors)
Table 7: Statements with factor scores for Factor A (source: Author's edition)
Statements with factor scores for Factor A
No. of
Statements Z-score
statement
(Z-score >1,5)
13 13. The DD process is not only a box-ticking exercise. 2.126
18 18. The management assessment is an essential part of the analysis of the target company. 1.659
19. The objective of the DD is to reveal risks (primarily the “deal-breaker” issues) to make a good decision about
19 1.559
the transaction.
22. In special cases, besides the traditional scope (legal, financial, taxation) might be extended to a technological or
22 1.537
environmental assessment.
(1,0 < Z-score < 1,5)
26 26. The results of the DD process generally have an impact on the pricing and the final decision about the transaction. 1.309
7 7. The objective of the human and cultural DD is to support the implementation phase with its findings. 1.265
16 16. Human and cultural analysis plays an essential role in the DD process. 1.101
(Z-score < -1,5)
9 9. Only financial, legal, and taxation DD are necessary to close a deal. -1.511
17. Human and cultural DD is only necessary when the current owner plays an important role in managing the target
17 -1.742
company (there is no independent management).
11 11. There is no need for human DD as new management shall be appointed after closing the deal. -1.751
(-1,0 > Z-score > -1,5)
14. Thorough human and cultural DD is only necessary when an increased level of integration between the acquirer
14 -1.230
and the acquired companies is planned.
36. The objective of the DD is to reveal the main risks before closing the deal, but it does not play any role in the
36 -1.455
post-closing (implementation) phase.
(grey = statistically significant concensus statements; light blue = statistically not significant but somewhat consensus statements;
light red = statistically significant distinguishing statements for Factor A)
Factor A: strategical attitude
A strategical attitude characterises Factor A.16 The people loading on this factor agree strongly
on extending the investigation areas over the traditional scope of the due diligence process,
which they do not regard only as a mandatory exercise (Table 717). Furthermore, they recognise
the importance of the human and cultural examination and argue that its findings could play an
essential role after closing the deal (in the implementation phase). Respondents with a
16
Description of the respondents associated with Factor A: Business and strategy experts are overrepresented in
that Factor A (all of them were ranked), and almost half of the financial professionals (41%) were classified in that
group. However, legal and risk management practitioners are less present (25-25%).
17
In Table 7, I collected the statements with the highest and lowest factor scores for Factor A, as they typify the
attitudes in this opinion group the most. I also marked those statements already discussed among the consensus
statements or are statistically significant distinguishing statements for that factor.
49
strategical attitude strongly disagree that only financial, legal, and taxation aspects should be
considered to deciding on a transaction because ‘soft issues’ should also play an indispensable
role in the decision-making.
Table 8: Distinguishing statements for Factor A (source: Author's edition)

Distinguishing statements for Factor A
No. of Q sort
Statements
statements values
7. The objective of the human and cultural DD is to support the implementation phase
7 2
with its findings.
16 16. Human and cultural analysis plays an essential role in the DD process. 2
21. The human and cultural aspects (findings) are rarely the critical factors in whether
21 2
to do the deal or not, but rather a significant factor in making a deal work.
3. The assessment of the corporate culture is an essential part of the analysis of the
3 1
target company.
35 35. In most cases, time is the main constraint to performing a comprehensive DD. 1
34. A comprehensive human and cultural DD could not prevent human and cultural
34 1
problems that arose after the closing.
30. There is not enough capacity on the investor/acquirer side to perform a DD in most
30 0
cases.
31. There is no relevant skillset on the investor/acquirer side to perform a DD in most
31 0
cases.
29 29. The cost is the main constraint to performing a comprehensive DD in most cases. 0
6. Starting a DD process is only suitable when the investor/acquirer has previously
6 verified the management’s competence or has a concrete plan to replace the 0
management.
25. The main constraint to performing an appropriate human and cultural DD is the lack
25 -1
of good quality data and information.
5. In most cases, the main problem is the inadequate availability of good quality data
5 -1
and information to carry out a proper DD.
10 10. The failure of M&A transactions primarily is due to human and cultural reasons. -1
27. The decision about the deal is made upon ‘hard data’. Soft issues like human and
27 -2
cultural problems shall be managed after the closing.
14 -2
9 9. Only financial, legal, and taxation DD are necessary to close a deal. -3
17. Human and cultural DD is only necessary when the current owner plays an important
17 -3
role in managing the target company (there is no independent management).
11. There is no need for human DD as new management shall be appointed after closing
11 -3
the deal.
Furthermore, they argue that an HCDD should be performed in all cases, not only in specific
circumstances (e.g. when the former owner plays an important role in managing the target
company or an increased level of integration is planned) because these aspects have a strong
50
influence on the transaction’s success, regardless of whether new management is appointed

after the closing (Table 8).
It is important to highlight that this opinion group is relatively neutral on the main material
constraints (such as budget, time, capacity, skillset or lack of data and information), which
creates an opportunity for convincing them to perform the more human and cultural
investigation by raising more awareness on that topic and connecting good quality service
providers with them.
By comparing Factor A and B, I can conclude that the main difference is how the two opinion
groups consider the role and importance of the human and cultural aspects in a due diligence
process (Figure 11). While the respondents in Factor A strongly believe that human and cultural
due diligence (should) play an essential role in the investigation, participants in Factor B
disagree with that opinions (statements 3 and 16). In addition, people loading on Factor A
disagree that HCDD is only necessary when an increased level of integration is planned or if
the former owner played an important role in managing the target company (statements 14 and
17). While people loading on Factor B support these statements and think that “only financial,
legal, and taxation DD are necessary to close a deal” (statement 9) (while respondents in Factor
A strongly disagree).
Figure 11: Differences between Factor A and Factor B (source: Author's edition)
51
More or less the same differences can be found when comparing Factor A and C (Figure 12).
Participants in Factor A strongly agree that the results of HCDD can support the implementation
phase and can have an impact on the pricing (statements 7 and 26). People loading on Factor C
strongly disagree with that statement. On the other hand, there are disagreements on whether
the HCDD is necessary (statement 9) or only in special cases (for example, when the former
owner was actively involved in the target company’s management; statement 17).
Figure 12: Differences between Factor A and Factor C (source: Author's edition)
Factor B: Sceptical attitude to human and cultural aspects
Factor B is characterised by a sceptical attitude to human and cultural aspects.18 The people
loading on this factor agree with the other two groups that DD is more than a mandatory
exercise; its main goal is to reveal risks and thus support decision-making (Table 919). They
18
Description of the respondents associated with Factor B: Legel experts are overrepresented in that Factor B
(75% of them were ranked in that factor), and more than half of the financial professionals (53%) were classified
in that group. However, risk management or business and strategical experts are not present.
19
In Table 9, I collected the statements with the highest and lowest factor scores for Factor B, as they typify the
52
also believe that the available time and budget are the main constraints to performing a thorough
analysis, which might extend to technological or environmental assessment in some cases. With
respondents with a strategical attitude (Factor A), respondents loading on Factor B think DD
reports and their findings generally impact pricing. (They consider due diligence generally
essential with the exception of human and cultural aspects.) Factor B respondents also think
investors and acquirers generally dispose of the relevant skillset to perform a proper DD.
Nevertheless, they consider human and cultural aspects marginal, which must be examined as
part of the legal due diligence (e.g. employee contracts). Moreover, the corporate culture
assessment is not essential to the investigation. The main reason behind this attitude is that they
disagree that the failure of M&A transactions primarily is due to human and cultural
circumstances. They also claim that there is no connection between the decision to start due
diligence and the assessment of the current management or a concrete plan for their
replacement.
Table 9: Statements with factor scores for Factor B (source: Author's edition)
Statements with factor scores for Factor B
No. of statement
Statements Z-score
(Z-score >1,5)
13 13. The DD process is not only a box-ticking exercise. 2.150
19. The objective of the DD is to reveal risks (primarily the “deal-breaker” issues) to make a good
19 1.661
decision about the transaction.
1. The limitation of the DD scope to legal, financial and taxation aspects is due primarily to the time
1 1.572
and cost constraints.
(1,0 < Z-score < 1,5)
22. In special cases, besides the traditional scope (legal, financial, taxation) might be extended to a
22 1.386
technological or environmental assessment.
26. The results of the DD process generally have an impact on the pricing and the final decision about
26 1.255
the transaction.
2 1.120
(Z-score < -1,5)
10 10. The failure of M&A transactions primarily is due to human and cultural reasons. -1.859
(-1,0 > Z-score > -1,5)
12. Conducting a DD is only (time and cost) effective when it is 100% outsourced to external service
12 -1.057
providers (lawyers, accountants, advisors).
36. The objective of the DD is to reveal the main risks before closing the deal, but it does not play any
36 -1.234
role in the post-closing (implementation) phase.
31 31. There is no relevant skillset on the investor/acquirer side to perform a DD in most cases. -1.295
3 3. The assessment of the corporate culture is an essential part of the analysis of the target company. -1.428
6. Starting a DD process is only suitable when the investor/acquirer has previously verified the
6 -1.488
management’s competence or has a concrete plan to replace the management.
(grey = statistically significant concensus statements; light blue = statistically not significant but somewhat consensus statements; light
red = statistically significant distinguishing statements for Factor B)
53
It is important to highlight that this opinion group is relatively neutral on whether the findings
of HCDD can be used after closing the deal (in the implementation and integration phase) and
indifferent regarding the availability of the necessary data to perform such an analysis (Table
10). Both (neutral) opinions might stem from the limited knowledge of that group’s human and
cultural examination (which is comprehensible as they do not consider it an essential part of the
due diligence).
In order to convince them to pay more attention to human and cultural aspects in M&A
transactions, more statistics, reports and case studies should be published about these factors’
role in the failures of many transactions.
Table 10: Distinguishing statements for Factor B (source: Author's edition)

Distinguishing statements for Factor B
No. of Q sort
Statements
statements values
1. The limitation of the DD scope to legal, financial and taxation aspects is due primarily to
1 3
the time and cost constraints.
2 2
20 20. The main objective of the DD process is to confirm the financial, legal and taxation facts. 2
17. Human and cultural DD is only necessary when the current owner plays an important role in
17 1
managing the target company (there is no independent management).
18 18. The management assessment is an essential part of the analysis of the target company. 1
7. The objective of the human and cultural DD is to support the implementation phase with its
7 1
findings.
21. The human and cultural aspects (findings) are rarely the critical factors in whether to do the
21 1
deal or not, but rather a significant factor in making a deal work.
25. The main constraint to performing an appropriate human and cultural DD is the lack of good
25 0
quality data and information.
34. A comprehensive human and cultural DD could not prevent human and cultural problems
34 0
that arose after the closing.
8 8. Human and cultural issues are essential primarily in the negotiation phase. -1
30 30. There is not enough capacity on the investor/acquirer side to perform a DD in most cases. -1
27. The decision about the deal is made upon ‘hard data’. Soft issues like human and cultural
27 -1
problems shall be managed after the closing.
29 29. The cost is the main constraint to performing a comprehensive DD in most cases. -1
16 16. Human and cultural analysis plays an essential role in the DD process. -2
31 31. There is no relevant skillset on the investor/acquirer side to perform a DD in most cases. -3
3 -3
company.
6. Starting a DD process is only suitable when the investor/acquirer has previously verified
6 -3
the management’s competence or has a concrete plan to replace the management.
10 10. The failure of M&A transactions primarily is due to human and cultural reasons. -3
54
By comparing Factor B and C, I can conclude that the main difference is how the two opinion
groups consider the impact of the due diligence on the pricing and the final decision about the
transaction (Figure 13). While respondents with a rather sceptical attitude to human and cultural
aspects still firmly believe that traditional due diligence and its findings play an essential role,
people loading on Factor C disagree. Respondents associated with Factor B believe that
acquirers and investors dispose of the relevant skillset to carry out such an analysis, while the
other opinion group deny it. Their opinion also differs on whether due diligence should be
started only with a management assessment or a concrete plan for the future. The people loading
on Factor C support this statement, while the group with a sceptical attitude to human and
cultural aspects disagree in that respect. (The differences between Factor A and Factor B were
presented in the previous section.)
Figure 13: Differences between Factor B and Factor C (source: Author's edition)
55
Factor C: risk-averse attitude
A risk-averse attitude characterises factor C.20 The people loading on this factor agree with the
other two groups that the main objective of the DD is to reveal risks (Table 1121).
Table 11: Statements with factor scores for Factor C (source: Author's edition)
Statements with factor scores for Factor C
No. of
Statements Z-score
statement
(Z-score >1,5)
19. The objective of the DD is to reveal risks (primarily the “deal-breaker” issues) to make a good decision
19 1.741
about the transaction.
25. The main constraint to performing an appropriate human and cultural DD is the lack of good quality data
25 1.638
and information.
17. Human and cultural DD is only necessary when the current owner plays an important role in managing the
17 1.612
target company (there is no independent management).
18 18. The management assessment is an essential part of the analysis of the target company. 1.563
(1,0 < Z-score < 1,5)
31 31. There is no relevant skillset on the investor/acquirer side to perform a DD in most cases. 1.262
35 35. In most cases, time is the main constraint to performing a comprehensive DD. 1.187
6 1.032
(Z-score < -1,5)
7 7. The objective of the human and cultural DD is to support the implementation phase with its findings. -1.511
30 30. There is not enough capacity on the investor/acquirer side to perform a DD in most cases. -1.586
(-1,0 > Z-score > -1,5)
37. The decision-makers in the investor/acquirer companies generally do not need additional information
37 -1.161
over the traditional DD scope (financial, legal, taxation).
8 8. Human and cultural issues are essential primarily in the negotiation phase. -1.288
34. A comprehensive human and cultural DD could not prevent human and cultural problems that arose after
34 -1.314
the closing.
26. The results of the DD process generally have an impact on the pricing and the final decision about the
26 -1.330
transaction.
29 29. The cost is the main constraint to performing a comprehensive DD in most cases. -1.418
(grey = statistically significant concensus statements; light blue = statistically not significant but somewhat consensus statements; light red =
statistically significant distinguishing statements for Facto C)
However, interestingly this group agrees to a much less extent with the statement that due
diligence is not only a box-ticking exercise (1 vs 3 in the other two groups). Furthermore, they
20
Description of the respondents associated with Factor C: Risk management experts are overrepresented in that
Factor B (75% of them were ranked in that factor), and only one financial expert (6%) was classified in that group.
However, risk management or business and strategical experts are not present.
21
In Table 11, I collected the statements with the highest and lowest factor scores for Factor C, as they typify the
56
do not think the DD report findings would impact the pricing or financial decision (instead, they
consider these investigations a risk management tool).
In this group, respondents consider the human and cultural aspects more substantial than Factor
B, mainly from the perspective of the potential risk they represent and not from a strategical
point of view (like in the case of Factor A). In their opinion, the HCDD should concentrate on
the assessment of the (current) management and not other aspects, especially if there is no
independent management in the target company (for instance, in the case of a business
succession). They do not perceive material constraints (such as budget, time, skillset or
capacity) to perform a proper (human and cultural) due diligence.
Table 12: Distinguishing statements for Factor C (source: Author's edition)

Distinguishing statements for Factor C
No. of Q sort
Statements
statements values
25. The main constraint to performing an appropriate human and cultural DD is the lack of good quality
25 3
data and information.
17. Human and cultural DD is only necessary when the current owner plays an important role in managing
17 3
the target company (there is no independent management).
31 31. There is no relevant skillset on the investor/acquirer side to perform a DD in most cases. 2
6 2
27. The decision about the deal is made upon ‘hard data’. Soft issues like human and cultural problems
27 1
shall be managed after the closing.
13 13. The DD process is not only a box-ticking exercise. 1
22. In special cases, besides the traditional scope (legal, financial, taxation) might be extended to a
22 1
technological or environmental assessment.
10 10. The failure of M&A transactions primarily is due to human and cultural reasons. 0
16 16. Human and cultural analysis plays an essential role in the DD process. 0
3 3. The assessment of the corporate culture is an essential part of the analysis of the target company. -1
21. The human and cultural aspects (findings) are rarely the critical factors in whether to do the deal or
21 -1
not, but rather a significant factor in making a deal work.
36. The objective of the DD is to reveal the main risks before closing the deal, but it does not play any role
36 -1
in the post-closing (implementation) phase.
24 24. The first step of a human and cultural DD process is the acquirer’s self-assessment. -2
34. A comprehensive human and cultural DD could not prevent human and cultural problems that arose
34 -2
after the closing.
26. The results of the DD process generally have an impact on the pricing and the final decision about the
26 -3
transaction.
29 29. The cost is the main constraint to performing a comprehensive DD in most cases. -3
7 7. The objective of the human and cultural DD is to support the implementation phase with its findings. -3
30 30. There is not enough capacity on the investor/acquirer side to perform a DD in most cases. -3
By analysing the statements in which this opinion group is relatively indifferent, I can conclude
that the respondents with a risk-averse attitude are relatively neutral about a thorough and
57
detailed HCDD (Table 12). They think a narrower scope is sufficient as they do not consider it
a strategical element but as part of risk management (even after the deal’s closing).
Based on the analysis, this group’s opinion can be formed by awareness-raising and presenting
specific business cases about the strategical aspects of a thoroughly performed human and
cultural due diligence.
(Factor C was already compared to the other factors in the previous two sections.)
Figure 14: Main distinguishing characteristics between the three factors (source: Author's
edition)
58
4. Findings
This study is organised around the following research questions:
(1) What role do human and cultural aspects play in the due diligence process of M&A
transactions?
(2) Which factors influence the role and the magnitude of the examination of human and
cultural aspects in the pre-closing period?
(3) What are the different opinions and attitudes regarding the human and cultural aspects
in the due diligence process among Hungarian practitioners and professionals?
I applied two methods (semi-structured interviews and Q-methodology) to answer these three
research questions. Based on the results of the analyses, I summarised the findings:
the acquirers or investors do not have enough capacity or skill to conduct a DD correctly). Back-
testing happens in only exceptional cases.
Three main factors influence the role and the magnitude of human and cultural aspects in the
due diligence process: 1. Negligence/awareness, 2. Time and 3. Skills. The negligence of that
topic is general and can be observed in both local and cross-border transactions. The role of the
C-level management is essential whether these factors are involved in the evaluation process.
In cases when the top management has a receptivity to these aspects, or they already recognised
their huge impact on the success of the deals, human and cultural aspects might be included in
the pre-closing evaluation procedure. Time is a general constraint to conducting thorough due
diligence. However, as HCDD is often considered less important, this analysis might be
cancelled quickly in case of time pressure. The third main barrier to conducting proper human
and cultural due diligence is the lack of knowledge and skills in that domain. Besides the
missing demand, the lack of experienced advisors and professionals also hinders that domain’s
development.
Three main different opinion groups exist among Hungarian practitioners and professionals
regarding the human and cultural aspects of the due diligence process. The group, which is
characterised by a strategic attitude, emphasise the essential role of HCDD in the evaluation
59
procedure as they consider soft (non-financial) issues also important in the decision-making.
This group consisted of mainly business and strategical experts. Another group (mainly legal
and financial experts), with a sceptical attitude, does not consider these aspects important. They
would analyse the human capital-related questions as part of the legal DD. While the third
group, with a risk-averse attitude, consider human and cultural aspects from a risk-management
perspective, and they do not attach any strategical importance to that topic.
As the opinion group with a strategic attitude already recognised the importance of the human
and cultural aspects and is neutral regarding the material constraint (like time and cost), in their
case, the knowledge transfer (guidelines, methods, tools etc.) and high-level service providers
could foster to focus more on the topic. In the case of the third group (with a risk-averse
attitude), awareness-raising about the strategic and long-term impact of the human and cultural
factors on the transaction’s success might persuade them to support or initiate a thorough
evaluation of these aspects. (They are also neutral regarding the time or cost constraints.) The
second group (with a sceptical attitude) is still at the beginning of the journey to accept,
understand and initiate the analysis of the human and cultural aspects of M&A transactions. In
order to convince them, reports and case studies should be published about these factors’ role
in the failures (and the success) of many transactions. Moreover, convincing the other two
groups could also help as the professionals belonging to the second group would work together
with the members of the other two opinion groups, and they will recognise the importance and
the feasibility of such an assessment (“learning-by-doing”). As this group is also highly
concerned about the time and cost side of the pre-closing phase, it would also help if the overall
knowledge and approach to the due diligence could develop. The DDs would be more carefully
planned and organised; stakeholders and decision-makers consider their findings essential and
apply them during the negotiation process and later in the post-closing period).
4.1.Recommendation
One of the main constraints to conducting proper human and cultural due diligence is the lack
of knowledge and skills in that domain. One of my interviewees described the situation in the
60
Hungarian market as a ‘chicken-egg problem’: there is no demand (and skill) for HCDD on the
acquirer side. However, there is no supply of professional advisors either who can perform this
kind of analysis. Moreover, semi-structured interviews confirmed that a biased or non-rational
approach exists among the practitioners regarding the human and cultural aspects and their
impact on the transactions’ performance. Although they consider the evaluation of human and
cultural aspects important, it takes place only in rare cases. The reason might be the lack of
knowledge and limited access to reliable methods and tools.
Based on the literature review, empirical research and my experience in M&A transactions, I
propose the following human and cultural due diligence guideline.
I. Scope of the HCDD
This content represents a full scope HCDD which might not fit all transactions or all (target)
companies. The acquiring company’s or the advisors’ duty is to tailor the scope to the specific
cases.
1. Human resources aspects

a. Employee statistics and data: age, gender, date of hiring date etc.
b. Employee contracts (at least for the management and key employees 22)
c. Compensation packages and bonus schemes (employee share scheme, pension
scheme)
d. Employee classification
e. Job descriptions and responsibilities (at least for key employees)
f. Working conditions, health and safety policy
g. Employee handbook and employment policy (if available)
2. Recruiting and HR support (strategy)
a. Reports and statistics: headcount, attrition, turnover, tenure, average time to
retirement etc.
b. Recruiting and selection process
22
Key employees must be determined by the investor or acquiring company according to the strategic goals of the
transaction and based on the target company’s operations and business activity.
61
c. Role and position of the HR in the organisation

d. HR policies, procedures (technologies, software)
3. Skills and performance:
a. Employee career history (based on CVs or at least LinkedIn profiles)
b. Management track record (based on CVs, LinkedIn profiles and interviews, and
external references)
c. Training system
d. Innovation capabilities (organisation of innovation)
e. Knowledge management
4. Risks and litigations
a. Conflicts of interest
b. Previous, ongoing or expected claims by current or former employees
c. Bribery Act Policy, policies to prevent bribery and corruption risk
5. Organisational structure and design
a. Organisation charts
b. Decision-making process (formal and informal)
c. Information flows (formal and informal)
6. Culture, time spirit, informal networks:
a. Surveys (e.g. 360-degree feedback, internal satisfaction surveys)
b. Cultural assessment23, focusing at least on the following areas:
i. Vision, core values and their consistency across the organisation,
ii. Innovation capability,
iii. Risk-taking or risk-averse attitude,
iv. Leadership, characteristics and functioning of the top management team,
v. Teamwork, autonomy and hierarchy,
vi. Customer orientation,
vii. Performance and reward orientation,
23
Various cultural assessment methodologies and tools exist (e.g. the so-called Denison organisational culture
survey: https://www.denisonconsulting.com/wp-content/uploads/2019/05/denison-culture-survey-d48.pdf). I
recommend focusing at least on the proposed areas and choosing the model which fits the acquiring company’s
needs and objectives. As self-assessment is also important to evaluate the challenges posed by the potential
transaction, applying the same methodology to both assessments is recommended.
62
II. Collection of information
As in most cases, the necessary data, information and documents are gradually available
following the progress (and depth) of the negotiations. I recommend pursuing the following
steps (Figure 15):
Figure 14: Collection of information for human and cultural due diligence (source: Author's
edition)
1. Publicly available data, information and documents (public

reports, social and traditional media)
2. External stakeholder interviews (customers, suppliers,

former employees)
3. HR data, reports, regulations and written policies
4. Internal stakeholders (employee) interviews and surveys
III. Communication
Communication is one of the critical elements of a transaction and due diligence procedure,
which is often overlooked. However, a structured and well-planned communication strategy
could support not only the due diligence process by allowing the acquiring company to gather
more information but also might make the post-closing period smoother and less agitating. I
propose the following strategy (Figure 16):24
24
In the proposed strategy, I recommend that before the specific milestones of the transaction, the indicated group
of stakeholders should be informed (for instance, the information about the transaction should be provided to the
employees at least some hours before the official announcement).
63
Figure 15: Communication plan for due diligence process (source: Author's edition)
64
5. Discussion
M&A transaction is essential in many corporations’ strategies to realise growth and achieve
competitive advantages. However, based on statistics and several studies, most deals fail to
deliver any added value for the shareholders or even destroy the value. This contradiction can
be partially explained by the fact that companies only in a few cases carry out any formal back-
testing or review of the results of the deals.
While professionals mainly focus on financial and strategic or business factors to explain the
significant percentage of the failing transactions, surveys and studies pointed out that human
and cultural factors are the main contributors to the failure of many M&A deals.
The surprisingly high number of transactions failing to deliver shareholder value has attracted
increasing attention from academics and practitioners since the 1990s. Parallelly, due diligence
in general (with the traditional scope: legal, finance, taxation) has also been considered more
seriously since the financial crisis in 2008-09. Nevertheless, most research focused only on the
legal, financial and other business-related aspects until recently. As these factors could not
deliver comprehensive answers in many cases, new aspects (like human and cultural aspects)
have been scrutinised. However, most of the research considers these aspects essential in the
post-closing (integration) phase, and the importance of the careful analysis of this subject in the
pre-closing (due diligence) phase is still not widely recognised.
5.1.Implications
The analysis results confirmed that human and cultural evaluations were generally neglected in
local (Hungarian – Hungarian) and international transactions. Among the main factors that have
a critical influence on how the practitioners approach the human and cultural aspects in the due
diligence process, the lack of awareness and competencies play a significant role.
Moreover, semi-structured interviews confirmed that a biased or non-rational approach exists

among the practitioners regarding the human and cultural aspects and their impact on the
transactions’ performance. Although they consider the evaluation of human and cultural aspects
important, it takes place only in rare cases. The reason might be the lack of knowledge and
limited access to reliable methods and tools.
65
Awareness-raising of the impact of the human and cultural factors, new methodologies and
tools, and the availability of high-quality service providers could foster the majority of
practitioners to focus more on these factors in the pre-closing phase of the transactions.
Based on the literature review and the research findings, I created a human and cultural due
diligence guideline which could serve as a framework for those practitioners who intend to
apply this methodology in their M&A transactions. Nevertheless, the presented content
represents a full scope HCDD which might not fit all transactions or all (target) companies. The
acquiring company’s or the advisors’ duty is to tailor the scope to the specific cases.
5.2. Limitations and future research
My study’s findings have several limitations. As the Q method analysis results cannot be
regarded as statistically representative, it is recommended to conduct quantitative research with
big samples to gather more detailed information and statements generalised to a larger
population. As my study focused only on the Hungarian market, I recommend carrying out a
similar analysis in other countries to obtain a broader picture of the human and cultural aspects
of the due diligence process. Consequently, it would allow the researchers to explore the
differences and similarities between the different markets. It would be useful to evaluate
different case studies to understand the attitudes and motivations of the different stakeholders
participating in the M&A transactions’ due diligence process (and specifically their approach
to the human and cultural aspects).
66
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Appendix
Appendix 1
Guideline of the semi-structured interviews

(6) Due diligence scope:
 What is the due diligence scope in general?
 What are the claims of the clients or the decision-makers?
 Besides the traditional scope (legal, finance, taxation), do you cover any other
topics?
(7) Performers of due diligence:
 Who is involved in the due diligence process?
(8) Main trends:
 What are the main trends in the market regarding the due diligence processes?
(9) Beck-testing:
 Do you perform any back-testing to assess the effectiveness of the due diligence?
 If yes, do you apply the findings in the next investigations?
(10) Human and cultural due diligence.
 Do you have experience in human and cultural due diligence?
 If yes, which areas do you cover?
 Do you have any specific methodology to assess these aspects?
 Which types of data do you generally use for the analysis?
69
Appendix 2
Statements
General view on DD:
20. The main objective of the DD process is to confirm the financial, legal and taxation facts.
13. The DD process is not only a box-ticking exercise.
26. The results of the DD process generally have an impact on the pricing and the final decision
about the transaction.
19. The objective of the DD is to reveal risks (primarily the “deal-breaker” issues) to make a
good decision about the transaction.
36. The objective of the DD is to reveal the main risks before closing the deal, but it does not
play any role in the post-closing (implementation) phase.
35. In most cases, time is the main constraint to performing a comprehensive DD.
29. The cost is the main constraint to performing a comprehensive DD in most cases.
5. In most cases, the main problem is the inadequate availability of good quality data and
information to carry out a proper DD.
Skills, capacity, outsourcing

12. Conducting a DD is only (time and cost) effective when it is 100% outsourced to external
service providers (lawyers, accountants, advisors).
31. There is no relevant skillset on the investor/acquirer side to perform a DD in most cases.
30. There is not enough capacity on the investor/acquirer side to perform a DD in most cases.
15. It is recommended to perform as much of the DD process/scope as possible internally
because an analysis conducted by an internal team has advantages in the post-closing phase.
Due diligence scope

9. Only financial, legal, and taxation DD are necessary to close a deal.
1. The limitation of the DD scope to legal, financial and taxation aspects is due primarily to
the time and cost constraints.
37. The decision-makers in the investor/acquirer companies generally do not need additional
information over the traditional DD scope (financial, legal, taxation).
22. In special cases, besides the traditional scope (legal, financial, taxation) might be extended
to a technological or environmental assessment.
16. Human and cultural analysis plays an essential role in the DD process.
4. The need for a human and cultural analysis arises in many cases, but generally, there is no
time, cost or skill to run such an analysis.
70
Statements (continue)
Human and cultural due diligence
10. The failure of M&A transactions primarily is due to human and cultural reasons.
34. A comprehensive human and cultural DD could not prevent human and cultural problems that
arose after the closing.
24. The first step of a human and cultural DD process is the acquirer’s self-assessment.
11. There is no need for human DD as new management shall be appointed after closing the
deal.
28. Performing an objective human and cultural DD is impossible because potential problems
typically arise during the implementation phase.
23. The execution of human and cultural DD is based on intuition and previous experiences.
21. The human and cultural aspects (findings) are rarely the critical factors in whether to do the
deal or not, but rather a significant factor in making a deal work.
6. Starting a DD process is only suitable when the investor/acquirer has previously verified
the management’s competence or has a concrete plan to replace the management.
27. The decision about the deal is made upon ‘hard data’. Soft issues like human and cultural
problems shall be managed after the closing.
8. Human and cultural issues are essential primarily in the negotiation phase.
17. Human and cultural DD is only necessary when the current owner plays an important role in
managing the target company (there is no independent management).
14. Thorough human and cultural DD is only necessary when an increased level of integration
between the acquirer and the acquired companies is planned.
company.
18. The management assessment is an essential part of the analysis of the target company.
32. The objective of the human and cultural DD is to reveal the potential “deal-breaker” issues.
7. The objective of the human and cultural DD is to support the implementation phase with its
findings.
25. The main constraint to performing an appropriate human and cultural DD is the lack of good
quality data and information.
33. In many cases, the information about transactions under negotiations is not shared with the
management and key employees. Therefore there is no opportunity to perform a comprehensive
human and cultural DD (i.e. interviews, surveys).
(the number of the statements was selected randomly)
71
Appendix 3
Guideline: Human and Cultural DD research
Please evaluate the following statements on a scale between -3 and +3 according to how much
you agree with them!
The meaning of scale values:
 -3: I don't agree with it at all
 0: It is more or less indifferent to me
 +3: I totally agree with it
Evaluation table
(-3) (4 statements) (-2) (5 statements) (-1) (6 statements) 0 (7 statements) (+1) (6 statements) (+2) (5 statements) (+3) (4 statements)
Suggestions for the process of evaluation

1. Please make the evaluation in the attached Excel file.
2. Please read the statements and divide them first into three categories according to the
following table. You can also mark them with colours (red, yellow, green). You may find
more statements in one or another column, but this is no problem at this stage.
The statements The statements The statements
I disagree with indifferent for me I agree with
0
3. As you move forward, you will realise that there is a predetermined structure of how many
statements you can put into each category of the above scale. This makes further comparison
between the statements necessary. The method is about prioritizing the statements compared
to each other, so the level agreement does not play a role in itself.
4. Please place each statement into the cells within the Excel sheet (by using ctrl+x and ctrl+v)
according to the structure shown above. Make sure you do not place a statement twice or
miss any of them (by using ctrl+x and ctrl+v, it should be fine).
5. Please make sure that there is only one statement in each cell, and every statement has been
placed.
6. Please save the Excel sheet and send it back to the Email: almos.mikesy@gmail.com until
the 25th of May 2022. I ensure that I will use the information purely statistically for research
purposes. Please be honest, there is no good or bad or expected answer.
Thank you for your cooperation!
72
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Human and cultural aspects in due diligence of M&A transactions

Thesis · October 2022

The user has requested enhancement of the downloaded file.

Human and cultural aspects in due diligence of

Author (last name, first

Student ID number: h12012319

Degree program: Professional MBA Entrepreneurship & Innovation

Supervisor (first name, last

I, Almos Mikesy, hereby declare that:

Date: the 29th of June 2022

Figure 6: Six main steps of Q study (source: Author's edition) ............................................... 36

Figure 7: Field of expertise (all respondents) (source: Author's edition) ................................. 39

Figure 8: Number of transactions (all respondents (source: Author's edition) ........................ 40

Figure 10: Q-sort grid (source: Author's edition) ..................................................................... 41

Table 1: Respondents in the semi-structured interviews (source: Author's edition) ................ 27

Table 3: Factor correlations (source: Author's edition) ............................................................ 44

Table 4: Consensus statements (source: Author's edition) ....................................................... 46

Table 5: Further consensus statements (source: Author's edition) ........................................... 47

Table 8: Distinguishing statements for Factor A (source: Author's edition)............................ 50

M&A Mergers and Acquisitions

HCDD Human and Cultural Due Diligence

NDA Non-disclosure Agreement

SPA Sales and Purchase Agreement

DDR Due Diligence Review

R&D Research and Development (or Design)

- Lack of strong senior management commitment (36%);

This study is organised around the following research questions:

2.1.Scope and objective of the due diligence

(1) Facts (hard data) checking and confirmation;

(1) Assets and liabilities, financial statements;

2.2.Due diligence process

confidential information by requesting documents, visiting the sites and conducting

2.3.The economic value of due diligence

2.4.Human and cultural due diligence

2.4.1. Objective and methodology of human and cultural due diligence

As it is rather neglected, there is no widely acknowledged and applied definition, scope or

- Decision-making diagnosis of the organisation: besides the official structures and

Recruiting Benefits Compensation Payroll

The objective of the research was to analyse

To answer the research questions, I applied two different methods: 1. Semi-structured

structured) interviews is that it allows examining a group’s perspectives by applying a

Table 1: Respondents in the semi-structured interviews (source: Author's edition)

Age (years) ~50 ~40 ~35 ~40 ~30

Number of 250-300 250-300 150-200 15-20 8

Role in Advisor Advisor Advisor Member of Member of

Company Consulting Consulting Consulting Global IT Global IT

Gender Male Male Male Female Male

The structure of the interviews covered the following topics11:

(1) Due diligence scope,

Due diligence scopes

Similarly, communication is treated more consciously in the global IT company’s M&A

Performers of due diligence

Human and cultural due diligence

Full compensation Reports and statistics:

Employee career history

About the Q methodology

The application of the Q methodology is suitable in a business and management environment

The process of Q methodology

Figure 6: Six main steps of Q study (source: Author's edition)

Collection of the concourse

Selection of the statements (Q set)

The sub-categories included :