Psychological Attributes of Mergers — Part 1

Publication Date01 Jul 1982
AuthorNicholas A.H. Stacey
SubjectEconomics,Information & knowledge management,Management science & operations
Psychological Attributes
of Mergers Part 1
by Nicholas A.H. Stacey
Chesham Amalgamations & Investments Ltd
The David
Goliath "Evergreen"
The reasons why mergers have a hazy, hostile or
ferent image in the minds of many otherwise rational peo-
ple will not allow superficial, simple or easy explanations.
As a business activity, in one form or other, mergers have
been with us for a very long time, though the wider
recognition of limited liability 120 years ago in the earliest
general companies Act gave it impetus and acceleration.
experience of mergers between companies and their
impact on the participants in them have now been forming
for over a century.
Mergers between firms had slow beginnings: it should
too be remembered that their early march was not notably
dynamic or expansive, and for the greater part operated
between very small companies whose fate concerned few
others apart from their owners. By the closing decades of
the 19th and early in this century the number of mergers
rose steadily and the size of merged companies also in-
creased. Many of the early mergers were to stave off
bankruptcy: competitive, successful firms rarely merged
with their equally muscular competitors—their robust mid-
Victoria faith urged them to compete and not to combine,
and see their business rivals off. However, shifts in
technology, in markets and in needing larger resources for
financing the enterprise changed attitudes to mergers and
Both before but particularly after the first world war a
very large number of mergers were carried out and mainly
for defensive reasons. Mergers became the device for en-
couraging trustification in certain branches of industry
where size became an important ingredient of survival,
which is a good illustration of how technological innova-
tions can and do force the pace of amalgamations. And if I
may observe obiter, the massive amalgamations of the
nuclear power industry in the 1950s and 1960s was simply a
repetition of what external constraints can force on in-
Many of the early mergers were
to stave off bankruptcy: competitive,
successful firms rarely merged with
their equally muscular competitors
At all events, and earlier in this century, amalgamations
and mergers were inevitably forced on several industries to
rescue scores of companies but particularly those engaged
in traditional industrial activities in which Britain was
substantial and in earlier decades notably successful. Con-
centration and rationalisation then, were the two major
themes for carrying out mergers until after the second
world war.
Hence for a century or so mergers as a generic term have
passed into public consciousness as a painful treatment for
lustreless firms. Thus, one important and by all accounts
durably psychological impression that mergers have im-
parted to the average newspaper reader from the late Vic-
torian to the new-Elizabethan age was that company
amalgamations were not associated with success. Attitudes
gather force and gravitas slowly and are expressed in
fering terms of approval or censure. They wither away
even more slowly since they become part and parcel of the
baggage of acquired attitudes and of received wisdom.
Whereas information about botched up
mergers tends to be spread far and
details of successful mergers
have limited news or publicity value
It should not, therefore, strike us as astounding that the
notion continues to persist that only unsuccessful com-
panies merge. Thus, mergers are believed to be a passive
way out of trouble. Such ignorance of the true function
and nature of mergers in modern business is not harboured
alone by reactionary back-woodsmen so insecure as to
resist all change or by economics lecturers imparting
canons on the nature of perfect competition which they are
hard put even to imagine; they are shared by too many
unaware businessmen and by a reading public not even
remotely concerned about the business of business.
Yet the daily reported march of mergers during the past
decade or two should have made any casual observer of the
companies scene aware that most mergers, far from being
defensive, have a variable amount of dynamic ingredient.
Nonetheless not even assidious readers of the City pages
discern that most mergers and acquisitions are carried out
between successful companies! But we are back here to the
old, old story—while bad news travels fast, good news
does not have the same propensity for logistics. By the
same token, while information about botched up or
tenuously fought mergers has a remarkable tendency to
spread far and wide, details of successful mergers have
limited news value because non-aggressive, peaceful
agreements between companies are of limited general in-
But even if an acquisition or merger has turned out to be
manifestly successful, the process of initiating or
negotiating it, or the act of the merger itself is similarly
open to censure. Much of prevalent criticism does not rest
on pragmatism, but on psychology—on what I would
define as the David and
syndrome. The picture of
a merger in the public mind is represented by the big com-
pany gobbling up the smaller firm; from that vantage point

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