2 Historical trends in mergers and acquisitions, and why employees think of them as scary events involving job losses and other negative outcomes

Chapter 1 examined what mergers and acquisitions are, how they differ, and what different types of mergers and acquisitions there are as a way of appreciating their complexity. Chapter 1 set the foundation for understanding why employees perceive them as major organizational events, and Chapter 2 will now help you discover why many employees think of mergers and acquisitions as scary or threatening events because of their history. Historical trends in mergers and acquisitions can shape employees’ negative perceptions, feelings, and expectations about the organization they work for. This chapter will start by looking at the history of mergers and acquisitions by introducing you to the seven historical waves as a way of helping you discover the reasons why employees can think of them as risky, scary, or threatening organizational events that tend to result in job losses, management changes, relocation, and site closures. This chapter will then extrapolate from the historical trends what sorts of factors tend to inspire organizations to enter into a merger or acquisition (we can call these “entry factors”) which, from the perspective of employees, suggests that organizations tend to focus on organizational goals, such as increasing revenue or taking advantage of the opportunity to cut costs, rather than concerns about what is best for employees. The idea that businesses are motivated by profits is, of course, unsurprising, but the history of other mergers and acquisitions can make employees fear that job cuts and other cost-cutting measures such as site closures are very likely to happen. This can explain why employees often fear for their job security and why many plan to quit after hearing of an impending merger or acquisition. The history of mergers and acquisitions can also suggest to employees that they are risky or volatile organizational events that could end in failure. We will discuss factors that tend to inspire organizations to quit a merger or acquisition (we can call these “exit factors”) such as stock market crashes, economic recessions, and burst product “bubbles.” Stereotyping mergers and acquisitions as organizational events that tend to fail or that are historically volatile can explain why employees often feel a range of negative emotions about them, including a sense of uncertainty and cynicism, which we will explore further in Chapter 3. After discussing the historical trends, this chapter will then summarise the entry and exit factors, as well as what we can call common psychological casualties of mergers and acquisitions, such as job losses, site closures, and management changes. Chapter 2 thus helps you discover why mergers and acquisitions can evoke the psychological processes or outcomes that we discuss further on in this book.

A history of mergers and acquisitions

This chapter will start by looking at the history of mergers and acquisitions by introducing you to the seven historical waves since the 1890s, helping you understand the social, economic, and political conditions that tend to tally with organizations entering or exiting a merger or acquisition (Martynova & Renneboog, 2008). This section will set the foundation for helping you learn the reasons why employees can think of mergers and acquisitions as scary, risky, or threatening organizational events that tend to result in job losses, management changes, relocation, and site closures.

The 1st wave

When there are many sellers of a product in any given market there is competition between sellers and this forces them to reduce the price of the product to consumers. If, however, there are fewer sellers in a market, sellers are able to keep the price of the product higher. This basic principle in business inspired the first wave of mergers and acquisitions. In the “Great Merger Wave” within the United States (US), starting in the late 1890s, companies could join together as sellers of certain products or services, monopolise a market because of the lack of competition, and fix the prices paid by consumers. There were few laws or public policies preventing companies from doing this, and that inspired the wave of mergers and acquisitions (Bittlingmayer, 1985). Organizations were also inspired by booms in industrialisation, such as in manufacturing, railways, and the steel industries, giving companies the opportunity to expand (Gaughan, 2007). The organizations that joined together were often called “trusts,” such as the Standard Oil Trust of 1881 that led to a monopoly of over 90% of the global market in oil refining, and that inspired other companies to embark on similar ventures (Lamoreaux, 1985). These ventures succeeded in helping some organizations to monopolise certain markets. For example, JP Morgan founded US Steel by merging Carnegie Steel with Federal Steel and then acquiring a number of companies, giving US Steel a monopoly of nearly 70% of the US market (Hessen, 1975). Although the United States government had established a law prohibiting trusts that monopolised a market such as by keeping prices high (the 1890 Sherman Act, which was something called an “antitrust” law), the problem was that the law was reactive in the sense that the onus was on the government to investigate suspected monopolies, which could take years (Molodovsky, 1968; Wilson, 2003). Some authors argue that these sorts of ventures had high failure rates because of “diseconomies of scale” arising from their uncontrollable size (Livermore, 1935; Stigler, 1950; O’Brien, 1988), but they remained quite popular until, ironically, an attempted monopoly of the railway market contributed to the New York stock market crash in May 1901 (Block, 1970; Hidy, Hidy, Scott, & Hofsommer, 1988). President Theodore Roosevelt had taken office earlier that year in March 1901 and made a determined effort to apply the Sherman Act and develop policies against monopolies, instigating prosecutions and earning him a reputation for “trust busting” (Bittlingmayer, 2001; Harbeson, 1958). This had the effect of breaking up some trusts and dissuading the formation of some new trusts, therefore, the Sherman Act and Roosevelt’s efforts demonstrate the importance of competition laws in regulating mergers and acquisitions that monopolise a market. Gradually, at least in the United States, the idea of monopolising a market as a reason for a merger or acquisition became less popular and less feasible because of regulations. This first wave shows that entry factors that inspire organizations to enter to a merger or acquisition include industrialisation and the desire to monopolise a market in order to keep prices high, whereas exit factors include antitrust or competition laws that regulate such behaviour. From an employee’s point of view, this can suggest that organizations are primarily motivated to enter into a merger or acquisition because of the desire to increase their market share and revenue, but the downsides for employees are losing their jobs when economies of scale make it possible for organizations to save costs by reducing expenditure on staffing. The first wave of mergers and acquisitions slowed down and is said to have ended around 1914 when World War I started (Lamoreaux, 1985).

The 2nd wave

After World War I ended in 1919, the second wave of mergers and acquisitions began, with some authors suggesting that the second wave included not just the US but also Europe and the UK, albeit at a much smaller pace and size than in the US (Cartwright & Cooper, 1996; Vancea, 2013). It is estimated that, by the end of the second wave around 1929, organizations engaged in the transfer of ownership with assets of about $13 billion (Gaughan, 2007). The US regulations against monopolies (such as the Sherman Act and the later Clayton Acts of 1914) steered organizations away from trying to monopolise markets (Martynova & Renneboog, 2008; Stigler, 1950) because it was no longer legally possible to do so. Some authors suggest that whereas the first wave tended to involve horizontal mergers or acquisitions, the second wave involved more vertical and conglomerate mergers or acquisitions (Gaughan, 2007); see Chapter 1. It is estimated that during the first wave, about 3,000 organizations “disappeared” and in the second wave the number was 12,000 (United States; Fligstein, 1990), suggesting that the number of mergers or acquisitions increased. The second wave lost momentum in 1929 when the stock market crashed and the Great Depression of the 1930s started, followed by World War II from 1939 to 1945 (Gaughan, 2007). Employees who are aware of the impact of stock market crashes on organizations could feel fearful that organizations inspired to expand during “good times” within the national or global economy could likewise be inspired to contract when there are negative events within the national or global economy. In other words, it is plausible that employees could fear that their jobs will become insecure after a merger or acquisition if the national or global economy suffers a setback such as a stock market crash.

The 3rd wave

The third wave started in 1950 at a time when there was even stricter government legislation about mergers and acquisitions and curtailing of monopolies in the US and other countries. In the US, the 1950 Congress Celler-Kefauver Act was an amendment to the Clayton Antitrust Act of 1914 which made it even more difficult for organizations to embark on mergers or acquisitions as a way of reducing market competition (Gaughan, 2007). Some organizations had used loopholes within the Clayton Antitrust Act to embark on mergers and acquisitions that eliminated competition and the Celler-Kefauver Act helped to close these loopholes. Following the Great Depression, Roosevelt’s administration adopted a series of policies, reforms, and public works meant to restore the economy between 1933 and 1939. This comprehensive legislative program is also known as the New Deal (Hawley, 2015). Under this program, there were some initiatives meant to impose tighter control on antitrust pricing practices, which led the U.S. Congress to pass the Robinson-Patman Act in 1936 (Kovacic & Shapiro, 2000). Other countries imposed tighter antitrust regulations, such as or France (Derenberg, 1955) and Canada’s Combines Investigation Act (King, 1912; Stanbury, 1976). From 1963 to 1970, about 26,000 mergers or acquisitions took place in the United States (Gaughan, 2007). The intense activity is often known as the “conglomerate wave” because these types of deals became more popular than horizontal deals (Kaplan, 1955; Melnik & Pollatschek, 1973; Michel & Shaked, 1984; see Chapter 1 about different types of mergers or acquisitions). One inspiration for this was that announcements of a conglomerate mergers or acquisitions tended to create more market excitement and increases in the value of shares than horizontal deals (Matsusaka, 1993). The third wave started ending during the oil crisis of 1973 or 1974 when some Middle Eastern countries placed an embargo on the US, UK, and other countries for supporting Israel in the Yom Kippur War (Issawi, 1978). The price of oil quadrupled, and later on in 1979, there was a second oil crisis after the Iraq-Iran war started, halting oil production there. There were lasting economic consequences spanning until the early 1980s (Sachs, 1982). Employees whose organizations sell products or services whose profitability can change because of international events (e.g. oil crises, wars, or a breakdown in international relations) could fear that a merger or acquisition that is followed by a major international event will be short-lived and therefore that their jobs could be at risk.

The 4th wave

The fourth wave began in 1984 after economies started to improve and investors developed more optimism; about 2,543 mergers or acquisitions were concluded in the first year, involving up to $122,000 million in assets (United States; Gaughan, 2007). During the fourth wave, which peaked in 1988, aggressive takeovers (or “hostile” acquisitions) became common because it became fashionable to view companies as a bundle of liquid assets that could be bought (Gaughan, 2007). Some authors suggest that organizations started to focus on scaling down operations for better efficiency, de-conglomeration, and correcting managerial flaws by replacing non-performing executive teams (Manne, 1965; Fama, 1980; Fama & Jensen, 1986). It is possible that “hostile” takeovers played the role of inspiring confidence in shareholders by changing or disciplining the team responsible for leading or managing an organization earmarked for a merger or acquisition (Walsh & Kosnik, 1993). The trend among investors of conglomerate mergers or acquisitions became less popular during the fourth wave (Gaughan, 2007) because the financial performance of conglomerates tended to be worse than that of non-conglomerates, particularly when a conglomerate had too much of a mixture of operations (Lee & Cooperman, 1989; Mason & Goudzwaard, 1976). Acquisitions were often portrayed in the media as ruthless, aggressive, and unethical, with significant consequences for the companies and employees involved (Hirsch, 1986) because many workers lost their jobs, factories closed, and wages were cut (Jung & Dobbin, 2012). What some authors call “predatory capitalism” was common during the fourth wave (Freeman, Gilbert, & Jacobson, 1987; Newton, 1988; di Norcia, 1988). Investors tended to think that there was nothing immoral or unethical about acquisitions or mergers that improved efficiency or profit, viewing their strategies as “necessary evils” (Newton, 1988; Almeder & Carey, 1991; Fama, 1980; Jensen, 1986; Fama & Jensen, 1983) or a way of “separating the wheat from the chaff” in an organization (Bhide, 1989). Evidence is nonetheless mixed as to whether “hostile” acquisitions were genuinely motivated by a desire for growth or whether a bigger motive was the desire by organizations to build an empire (Eddey, 1991; Walsh & Kosnik, 1993). Around 4,000 mergers and acquisitions were concluded in Europe in 1988, almost half of which were carried in UK and involved almost £1 trillion (Martynova & Renneboog, 2008). The fourth wave started to slow down after the 1987 stock market crash, and ended in 1989 when the stock market crashed again, leading to the economic recession of the early 1990s (Gaughan, 2007). For example, the total global deal value decreased from around $600 billion US dollars in 1988 to merely $200 billion in 1991 (M&A Statistics Database – Institute of Mergers and Acquisitions). This wave can be said to have built a narrative among employees, through anecdotes or stereotypes, that mergers and acquisitions are “predatory capitalist” strategies for organizations to cut costs by axing jobs, changing management teams, and embarking upon measures that improve profits irrespective of the human impact for employees’ job security and the enjoyment of their previous working conditions.

The 5th wave

The fifth wave began in the early 1990s, and some authors suggest that there was a trend of consolidating organizations involved in highly fragmented markets through large-scale mergers or acquisitions that allowed expansion from regional markets to national markets (Gaughan, 2005). This period was marked by deregulation in several industries, including financial services (DeYoung, Evanoff, & Molyneux, 2009), and cable television and telephone services (Chan-Olmsted, 1998), which created a more fertile legal ground for the pursuit of mergers and acquisitions in these sectors. Just as organizational expansion from regional to national markets became popular, so did expansion from national to international markets, which is said to have been a characteristic of the fifth wave (Martynova & Renneboog, 2008; Geroski & Vlassopoulos, 1990). As well as in the US, there were more mergers and acquisitions in Asia and Europe, where deregulation and privatisation allowed investors to enter new markets (Gaughan, 2007). For instance, there were many British mergers and acquisitions involving organizations inside and outside the European Community (Geroski & Vlassopoulos, 1990; Uddin & Boateng, 2014). In 1990 the number of transactions initiated by European companies on US companies exceeded those initiated by US on European targets (Geroski & Vlassopoulos, 1990). In 1991 the UK became the second-largest acquiring nation and second-largest target nation, partly due to its relatively lenient laws about mergers and acquisitions, relatively lower tax rates, and economic stability (Uddin & Boateng, 2014). However, organizations still faced the challenge of merging with or acquiring organizations in more protectionist countries. For instance, the acquisition of Germany’s Mannesman AG by UK Vodafone PLC was fiercely opposed by German employees and the media, some of which characterised Vodafone’s manoeuvres as an example of pernicious free market capitalism (Halsall, 2008). That was until Germany’s then chancellor (Gerhard Schroeder) intervened by engaging in talks with the then UK Prime Minister (Tony Blair) that were heightened to an extent that the issue was oftentimes portrayed as a battle between nations (Corrigan, 1999, p. 35). The fifth wave started slowing down in 2000 when the “dot-com” bubble, which involved “exuberant” investment in online businesses (Greenspan, 1996), burst and, in some cases, online businesses fell in value by up to 90% (Valliere & Peterson, 2004) and about 5,000 dot-com companies disappeared by 2001 (Wang, 2007). This wave can be said to have taught employees at least two lessons that instil fears about mergers and acquisitions. One is that international mergers and acquisitions can create a clash of cultures with consequences for the way they work or enjoy work, and the second is that mergers or acquisitions inspired by what is fashionable (such as a product or service boom or bubble) could be doomed, and therefore employees in sectors experiencing a boom or bubble could fear that their jobs remain vulnerable.

The 6th wave

The sixth wave began after economies recovered from around 2003 and an estimated 23,000 mergers or acquisitions took place worldwide (Mohammed, 2008) until the wave peaked in 2007. In contrast to the fifth wave, organizations engaging in mergers or acquisitions are said to have displayed a more risk-averse approach to expansion (Alexandridis, Mavrovitis, & Travlos, 2012) and were less likely to embark on speculation or overconfidence about the financial outcomes of a merger or acquisition (Hayward & Hambrick, 1997). “Hostile” transactions are said to have become less frequent, and about half of the mergers and acquisitions globally are estimated to have occurred across borders (Dealogic, 2007). This wave also included mergers or acquisitions across borders that were inspired by changes in laws or policies within Eastern Europe that deregulated and liberalised economies and markets (Uhlenbruck & De Castro). Whereas in previous waves, manufacturing, minerals, or oil were popular sectors, service organizations such as banking and insurance became popular sectors for mergers or acquisitions (Allen et al., 2011). Other popular sectors were telecommunications (e.g. AT&T and Bellsouth; Comcast and AT&T Broadband & Internet Services), utilities (e.g. Royal Dutch Petroleum and Shell Transport & Trading; Gaz de France and Suez), and technology (e.g. Symantec and Veritas; Cisco and Linksys; eBay and Skype; Google and YouTube; AMD and ATI; HP and Compaq) (Dealogic, 2007). The financial success of mergers and acquisitions is questionable. Alexandridis et al. (2012) found in a sample of 3,206 merger and acquisition cases that, even in the sixth wave (as with many previous waves), many transactions failed to deliver positive returns. The housing bubble of 2007 and the ensuing subprime mortgages of 2008 reduced investors’ optimism and slowed down merger and acquisition activities because the crisis had wider financial ramifications when large financial institutions, such as the Lehman Brothers, became bankrupt (Gaughan, 2007). Due to greater globalisation in this wave compared to previous waves, the financial crisis carried a far bigger contagion risk than the previous bubbles, and it quickly sparked a ripple effect through markets in many countries (Allen et al., 2011). Several banks were nationalised in the UK as a rescue mechanism, such as Northern Rock, Bradford and Bingley, and in part the Royal Bank of Scotland (Marshall et al., 2012; Kickert, 2012). Other European governments followed suit with similar bailout actions to minimise the negative impact of failed private banks and the subprime financial crisis on the national economy (Alter & Schuler, 2012). Soon after, Ireland, Greece, and Portugal requested Eurozone help against defaults on sovereign debts and Spain/Italy were also severely vulnerable to defaults (Beirne & Fratzcher, 2013). The recession improved from mid-2009 in the US when GDP growth was reported but, in European countries, only some recovered quickly and to date, some countries are still grappling with the aftermath of that economic crisis (Zoega, 2019). The sixth wave of mergers and acquisitions can be said to have ended around the time of the subprime financial crisis in 2008. This wave can be said to have shaped beliefs among employees that a significant number of mergers and acquisitions end in failure, whether or not this is accurate within a given sector, and that those within financial services or involving international markets are particularly at risk, even if the economic crisis just occurs in some countries.

The 7th wave

The current, seventh wave of merger and acquisitions started in the 2014 (Cordeiro, 2014), although certain analyses seem to suggest it started few years earlier (Junni & Teerikangas, 2019) and, in 2014, the total value of deals was 3.5 trillion US dollars with over 40,000 deals announced globally (Thomson Reuters, 2015). The trend seemed to continue in 2015, with close to 5 trillion US dollars-worth of assets transferring ownership in around 40,000 deals (Dealogic, 2015). The new wave in the global landscape of mergers and acquisitions has already exceeded 2007 global levels, and is still expected to continue in the coming years (Thomson Reuters, 2015; Bloomberg, 2016; Dealogic, 2015). A feature of the seventh wave is a focus on very large deals (Bloomberg, 2016). By transaction value, the top sectors globally include finance, retail, manufacturing, healthcare, and communications (Bloomberg, 2016), and the most active regions involved in mergers and acquisitions activity are North America and Asia Pacific (Bloomberg, 2016). Recent examples of major deals are Pfizer’s acquisition of Hospira Inc for $16.8 billion; Royal Dutch Shell’s acquisition of BG Group PLC for $79.3 billion; the merger between H.J. Heinz Co’s and Kraft Foods Group Inc for $55.4 billion; Charter Communications Inc’s acquisition of Time Warner Cable Inc for $79.2 billion; and Anheuser-Busch InBev SA/NV’s merger with SABMiller Plc (Bloomberg, 2016). This wave could be said to have contributed to the narrative among employees of viewing mergers and acquisitions as tending to involve deals of huge value and scale. On one hand, that could make employees feel powerless and without much say about changes that will happen in organizations that are very big and in which policies or practices are set on a grand scale. On the other hand, the trend of mergers and acquisitions as events that remain popular among organizations, and that still happen despite previous waves ending with stock market crashes, economic recessions, or other crises, can make employees feel less fearful about them and potentially more supportive of them. It could help employees feel assured that mergers and acquisitions are common organizational events that might not mean job losses or other negative outcomes. Overall, however, what employees think or feel about mergers and acquisitions doesn’t just depend on trends within the seventh wave, but also trends within previous waves.

Trends in entering and exiting mergers or acquisitions

In the previous section, we discussed the seven waves of mergers and acquisitions and we noticed a series of trends emerging in terms of the factors that inspire organizations to enter mergers and acquisitions, which we can call “entry” factors, and factors that inspire them away from mergers or acquisitions, which we can call “exit” factors. We suggest that they shape the way that employees tend to think about them, and the fears or other emotions that they tend to exhibit (see Chapter 3), as well as the tendency among employees to want to quit and work elsewhere (Chapter 4). These factors include economic or societal events that act as triggers, or that signal the likely success or failure of a merger or acquisition. Figure 2.1 illustrates our summary, based on the history of mergers and acquisitions and the entry or exit factors that we noticed from the history of the field. We argue that these trends have shaped public opinion about mergers or acquisitions, and understanding the history will help you understand, psychologically, why employees have fears or uncertainties about them, or what we can call potential psychological (human) casualties, such as job losses. Figure 2.1 will also summarise some of these psychological casualty factors, and we explore several of them in greater detail across this book.

Entry and exit factors in mergers or acquisitions, and common casualties

What we call “entry factors” are common goals or trends that inspire organizations to embark on a merger or acquisition, and we can deduce these from our historical overview, summarised earlier in this chapter. One of the most common entry factors is the desire to increase profits and history shows that organizations have achieved it by pursuing certain complementary goals (Berkovitch & Narayanan, 1993). One example is increasing profits by accessing new markets nationally, such as a bank that acquires a chain of real estate agencies as a way of accessing customers on the property market, allowing the bank’s current operations (staff selling mortgages) to access new types of consumers (people who need a mortgage but who do not currently bank with them). Organizations also often use mergers or acquisitions as a way of accessing markets in other countries (market internationalisation), and this is a common method of increasing profits (Srivastava, Shervani, & Fahey, 1988). An example is a hotel chain that acquires independently owned hotels in other countries, rebrands them, and the chain is thus able to access customers internationally. The idea of emerging markets, such as the idea that previously communist, protectionist, or developing countries are open to free market capitalism, globalisation, or industrialisation can also motivate organizations to embark on mergers or acquisitions involving companies in countries that are new to certain product or service sectors (Lebedev, Peng, Xie, & Stevens, 2015).

Another common reason why organizations embark on a merger or acquisition is the idea that an intended company is potentially profitable, but it needs a new executive team (Walsh & Kosnik, 1993). An example is a company that embarks on an acquisition then instigates a management shakeup as a way of restoring excitement or confidence about the company on the stock market. The companies pursuing such acquisitions are usually private equity firms, such as Carlyle Group or Blackstone Group, and have a buy-to-sell approach to their acquisitions. One example is the acquisition of United Defense Industries by Carlyle Group in 1997 (Pasztor, 1997). After its initial public offering at the New York Stock Exchange (Kelly, 2001), the fund exited the defence company in 2004 (United Defense Industries, 2004). Corporation tax laws can also motivate organizations to embark on mergers or acquisitions, such as laws that provide tax discounts or rebates to organizations entering certain sectors (e.g. energy efficiency or social care) (Coffee, Lowenstein, & Rose-Ackerman, 1988). Cost cutting is another common motivator for mergers or acquisitions (Chatterjee, 1986). An example is a supermarket chain that acquires a large cattle ranch business as a way of reducing the cost of beef. Deregulation laws or public policies can also motivate organizations to merge with or acquire organizations that provide products or services that were previously restricted (Boateng, Qian, & Tianle, 2008). An example is a conglomerate that acquires a house-building business after the government announces a relaxation in house-building laws, such as allowing houses to be constructed on land that was previously protected as green-belt land. Other laws or public policies that can motivate organizations to embark on a merger or acquisition are those that liberalise the economy or encourage privatisation (Uhlenbruck & De Castro, 2000). An example is a law that allows the privatisation of an airline that was previously government-run, which inspires a private organization to acquire the airline. The principle of economies of scale can also motivate mergers or acquisitions (Lambrecht, 2004). Imagine an industrial bakery that sells pastries to cafés at the cost of £0.55 per pastry for orders of 50 to 119 pastries, or £0.35 for orders of 120 or more pastries. A chain of three cafés buys 90 pastries a day at the cost of £49.50, then sells them for £1.99 each, yielding a daily profit of £129.60. The chain works out that among the advantages of acquiring another café will be being able to buy the pastries cheaper by increasing their order to 120 pastries a day, raising the profit from £1.44 to £1.64 per pastry. Another motive for mergers or acquisitions is the desire to improve efficiency (Maksimovic & Phillips, 2001). An example is an online retailer that acquires a logistics company as a way of improving the speed with which customers receive their products. A sense of market excitement or a product or service “boom” is another common factor that motivates mergers or acquisitions (Lusyana & Sherif, 2016; Kumar & Sharma, 2019). An example is a food manufacturer inspired by the “clean eating” trend to acquire a gluten-free food brand. Financial booms that boost average wages or employment rates can increase consumer spending which, in turn, can motivate mergers with or acquisitions of businesses in retail (Carlson, 1991). Product or service “bubbles” are contexts where there are speedy rises in the profitability of certain products or services, often linked with heavily optimistic predictions about the future and therefore a motivation for a merger or acquisition (Lovallo & Kahneman, 2003). An example is an organization that sees other organizations making a lot of money on selling a certain type of insurance, based on recent rises in the numbers of customers buying that type of insurance, and assuming that the number of customers will continue to rise and, therefore, that acquiring an insurance underwriting business that provides that type of insurance is a good idea.

We notice that some entry factors seem primarily driven by an organization’s circumstances or goals such as cost-cutting, economies of scale, empire building, efficiency goals, overconfidence, and inspiring shareholder confidence. These entry factors can therefore be relevant within any type of organization or sector, and we theorise that employees form their expectations about the likely success or failure of a merger or acquisition driven by these factors on a case-by-case basis. We theorise that employees remember past experiences or attitudes (including anecdotes by employees in other organizations and media reports), and that employees with negative memories or impressions about these types of mergers or acquisitions are more likely to be uncertain or cynical about the organization’s ability to cut costs or improve efficiency through a merger or acquisition. In Chapter 3, we will discuss the types of negative emotions that employees exhibit and extrapolate the relevance of uncertainty and cynicism in employees’ negative emotions. Chapter 4 will then discuss factors that shape employees’ support for or resistance against a merger or acquisition. In subsequent chapters we will discuss the relevance of group processes of “us versus them,” and culture as factors that fuel employees’ resistance against a merger or acquisition. This chapter has thus helped you understand how history can contribute to employees’ emotions about mergers and acquisitions, as well as their behavioural reactions – such as supporting or resisting them.

In contrast to an entry factor, an “exit factor” is something that tends to trigger the dissolution of a merger or acquisition, which we can deduce from history. A common exit factor for many mergers or acquisitions is failing to increase profits (Ravenscraft & Scherer, 1987; Kaplan & Weisbach, 1992). An example is Microsoft’s exit from its acquisition of Nokia, a mobile phone company, in 2015 (Microsoft, 2016). Microsoft had tried to enter the mobile phone market by launching a Windows phone in 2010 but it did not fare as well as Microsoft hoped. Microsoft acquired Nokia in 2014 and launched a new subsidiary company, Microsoft Mobile. It launched Lumia, a new mobile phone, but its sales were not as good as Microsoft wanted, resulting in Microsoft cutting 15,000 Nokia employees’ jobs and selling Nokia to another company in 2016 (Microsoft, 2016). New or unexpected costs could also be another common reason for exits from mergers or acquisitions. An example is Toshiba’s failed acquisition of Westinghouse Electric, which specialised in nuclear power. Toshiba hoped that acquiring Westinghouse would allow it to enter markets outside Japan (where Toshiba already had nuclear operations). However, Toshiba encountered higher than expected construction costs (Hals, Yamazaki, & Kelly, 2017). Product or service busts can be another reason why mergers or acquisitions fail, such as when a previously popular sector declines as an opportunity to make profits (CBInsights, 2017). One example is Yahoo’s exit from its acquisition of Tumblr, a social networking website. Yahoo had embarked on the acquisition because it wanted to cash in on the rise in successful social media companies but, after failing to hit idealistic sales targets of $100 million a year, Yahoo ended its acquisition of Tumblr with a loss of $712 million (Fiegerman, 2016). Other common reasons for exiting a merger or acquisition are falls in share value or stock market crashes that reduce the value of a company, or financial recessions that make certain products or services less profitable (Peel, 1995). Other reasons include government legislation that introduces regulation within a market, such as classifying a previously unregulated cosmetic or tablet as a pharmaceutical and thereby introducing new costs, regulatory compliance needs, and delays to their manufacturers (CBInsights, 2017). Government legislation introducing protectionist laws can have a similar effect (Heinemann, 2012), such as businesses that sell products manufactured overseas facing new taxes that make the products less profitable. Crises in national economies (e.g. severe inflation) or international economies (e.g. from an oil crises) can have spill-over effects in many sectors because of the rising costs of wages, transport, imports, or foreign exchange. Finally, cultural differences between organizations are another commonly reported exit factor. An example is a difference in the extent to which each side approaches workplace interactions, something that we will discuss further later on in this book. Overall, the history of exit factors in mergers and acquisitions could make employees feel fearful that organizational, national, or global events could inspire an organization to back out of a merger or acquisition (with potential job losses in the process), or cut jobs to maintain profits by reducing staffing costs. This leads to what we can say are employees’ ideas, stereotypes, or expectations about common casualties in mergers and acquisitions that further explain why employees tend to have negative emotions and behavioural reactions.

The next few chapters will discuss common human casualties of mergers or acquisitions from a psychological point of view. Although there are many studies about employees’ experiences, feelings, and behavioural responses to mergers or acquisitions, this is the first book to help readers understand the overall picture about the psychological impact of mergers or acquisitions on employees by drawing on published evidence. This will be the focus of the next few chapters within this book, starting with our systematic review of published studies showing the range of negative emotions that employees experience about a merger or acquisition in the next chapter.

Conclusion

In this chapter, we discussed the history of mergers and acquisitions, and the way that market bubbles or supportive legislation tended to increase the numbers of mergers and acquisitions, whereas stock market crashes, oil crises, bubble bursts, and other national or global economic events have tended to reduce their numbers. Mergers and acquisitions used to be popular as a way of achieving a monopoly, but competition laws forced organizations to shift to types of deals that use legal loopholes or that involve other countries. We discussed why employees can experience fear and other negative emotions about an impending merger or acquisition within the organization that they work for by looking at the history of mergers and acquisitions nationally or globally, as well as by developing stereotypes from the media or other employees that were inspired by historical events. This leads us to explore the empirical evidence about what emotions employees experience – both positive and negative – through a systematic review of published studies about the topic within Chapter 3.