Family firms occupy a unique place in the business world. They’re often praised as long-term stewards rooted in community, yet just as often criticized as tradition-bound, slow to adapt, or prone to nepotism and internal conflict – akin to HBO’s Succession. Taken at face value, these assumptions make the idea of two family-owned firms merging seem not just unlikely, but unworkable.
Yet, new research from Seemantini Pathak, Ivey Associate Professor of Strategy, reveals a different story. In the complex world of mergers and acquisitions (M & A), family-to-family deals don’t just succeed – they excel.
Where legacy meets economy
Chances are high that someone you know is employed by a family business. And it’s no coincidence. Far from operating on the fringe, family firms form the foundation of the global economy. As the most common type of enterprise worldwide, they employ more than half the global workforce. Given their scale and influence, understanding their role in M & A is especially critical.
This is what drew Pathak, along with collaborators Francesco Chirico (Macquarie University), Robert E. Hoskisson (Rice University), and Massimo Baù (Jönköping University), to study how family firms perform when they merge.
“History is filled with examples of mergers that failed to create value, but too often we don’t understand why,” Pathak explained. “We wanted to uncover some of those answers by looking at a key differentiator: how social identity operates in family and non-family firms.”
To do this, the team analyzed more than 1,100 mergers in Sweden between 2004 and 2012, comparing deals involving family and non-family firms. They focused on two critical outcomes: employee job security and post-merger performance. To add depth, they complemented the data with interviews across five countries and three continents, and across all levels of an organization.
Because while M & A decisions are made in boardrooms, their impact is felt most acutely on the ground – by the people inside the firms.
The human cost of mergers
For non-family firms, mergers are frequently driven by cost-cutting and the removal of redundancies, which often translate into layoffs. Further, top managers often overlook misalignments in strategy, control systems, and operating procedures that make integration between the two firms problematic. The human toll can be considerable.
“In general, mergers are traumatic events for employees,” Pathak said.
Uncertainty runs high during mergers. Left in the dark, many employees choose to leave before layoffs even happen, while those who remain often grapple with deep insecurity.
“When employees feel they could be declared redundant at any moment, they begin competing for survival rather than collaborating,” Pathak explained. “That loss of trust doesn’t just hurt morale – it directly undermines how well a company performs.”
It was this context that prompted Pathak and her collaborators to wonder: are family firms likely to handle mergers differently?
Culture over consolidation
Unlike non-family firms that often pursue mergers primarily for cost-cutting and efficiency gains, family firms are motivated by fundamentally different goals. They seek to keep their firms intact, while allying with partners that share similar values and long-term priorities, which can help reduce portfolio risk through diversification.
"Family firms view mergers as a way to preserve and extend their stewardship role rather than simply maximizing short-term returns," Pathak said. "They're looking for partners who understand their commitment to maintaining the firm's identity and their continued involvement in the business.”
Since family firms are naturally united on central factors like stewardship and preservation they approach mergers with a strong shared social identity. This common ground fosters trust and cultural alignment – elements often absent in traditional mergers.
Still, can this shared social identity truly pave the way to a successful merger?
The human advantage
Pathak’s findings leave little doubt. Family-to-family mergers not only succeed, they outperform all others. The reason? These firms prioritize staying intact, which safeguards job security.
In fact, the research found that family-to-family mergers achieved a predicted job security rate of 0.63, compared to 0.57 for non-family mergers and 0.55 for mixed deals. This job security directly translated into superior post-merger performance – even a one-point jump in job security nearly quadrupled post-merger performance.
"When employees feel secure, they're more committed and productive," Pathak noted. "Family firms understand that their people are assets to be retained, not costs to be cut."
The research also uncovered a surprising twist: family mergers didn’t need to happen within the same industry to succeed.
“Our results found that family mergers actually perform better when the businesses come from different industries,” said Pathak. "This goes against traditional thinking that related mergers are safer and more successful."
The team believes industry differences help each merging company preserve its distinct identity and operational autonomy while still benefiting from the complementary advantages of diversification. Each set of family owners can continue managing their portion of the business with their employees, preserving specialized knowledge while achieving necessary integration through their shared social identity.
Looking beyond the numbers
For business leaders, the research underscores a lesson that extends well beyond family firms: social identity and culture matter. Most mergers fail not because of poor strategy on paper, but because of what happens after the deal closes – when two distinct organizations must learn to work as one.
Family firms show that when values, legacy, and long-term orientation are aligned, employees feel more secure, and integration is smoother. Rather than viewing employees as costs to be cut, successful family mergers treat them as assets to be retained – and this approach pays dividends in performance.
For executives navigating M & A, that means looking beyond balance sheets. Assessing cultural fit along with strategic fit, understanding shared values, and prioritizing employee retention may be just as critical as capital structure or market share. In a landscape where multi-billion-dollar mergers often struggle under cultural strain, family-to-family mergers provide a reminder that social identity can be a competitive advantage.
And that, sometimes, keeping it in the family – or families – is the smartest move of all.
Explore the research behind these findings in Calm in the Storm: Job Security and Post-Merger Performance in Family versus Nonfamily Firms, available in the Academy of Management Journal.
