An Exploration of the Effects of Mergers and Acquisitions on the Psychological Contract of SME Senior Managers

Abstract

Mergers and acquisitions (M&A) are strategies to increase the competitive advantage and management tools to gain access to strategic resources for the development of organisations. Therefore, the global M&A market is referred to as the market for corporate control, which ensures that resources are controlled by those who use them most successfully. The psychological contract (PC) includes the subjective expectations of senior managers (SMs) regarding their and the organisation’s mutual obligations. This paper examines the impact of pre- and early M&A phases on the PCs of SMs of small and medium-sized enterprises (SMEs) following the experience of friendly M&As with larger German corporations. These are European service companies in the construction and real estate sector. The qualitative research focuses on the content of the PCs of SMs in M&A scenarios and how they are influenced by pre-merger events, schemas or early phases of an M&A. Little is known about the PCs of SMs in the context of major organisational changes. When SMEs are taken over by larger companies, SMs experience a lot of changes, as they go from being independent entrepreneurs to employed managers, who must accept given structures, including for their team, which is embedded in a larger organisation. The findings indicate that the content of SMs’ PCs plays a decisive role in whether the planned M&A initiatives will be pursued at all, which in the cases investigated even took on the significance of knock-out criteria. The roles and context-specific content of PCs were discovered, as well as motives for M&As. The data was based on the observation of 31 multi-stage pre-merger exploratory workshops with 41 SMs from 18 potential target companies and 21 SMs from the acquiring side, and 13 extensive semi-structured in-depth interviews were conducted with SMs who had experienced M&A activities as survivors or agents. The research identified ten major themes providing valuable indications of how reflecting on the PC can be used to enable early mutual expectation management and thus foster sustainable integration. It is recommended to revise M&A processes to be more responsive to individuals and personal factors and to align human resources’ due diligence by considering the building blocks of the PC.