EVALUATING CORPORATE GROWTH AND SURVIVAL THROUGH MERGERS AND ACQUISITIONS
(A STUDY OF SOME SELECTED BANKS IN NIGERIA).
ABSTRACT
This study ascertains the influence
of merger and acquisition as a growth and survival strategy. The crisis
facing so many corporate firms as a result of capital inadequacy has led
to the collapsing of so many firms. As a result, it is the objectives
of this study is to evaluate the impact of merger and acquisition on
growth and survival of corporate firms using banks as study, to
ascertain whether the banks have grown and survived as result of merger
and acquisition. A survey research method was applied. Data were
collected through primary and secondary sources. The population samples
were drawn from two groups i.e. Access Bank and First City Monument
Bank. A judgmental sampling technique in which 45 and 50 of each samples
were selected was adopted for convenience sake. Data were analyzed
using “Z” test as an inferential statistics for testing of differences
in perception of participants on merger and acquisition as a means of
growth and survival and improving its earning per share. Ratios of the
banks used for study were employed for evaluation purposes. A regression
analysis was adopted to express the quantitative relationship among
variables i.e. Return on Capital Employed (ROCE) and Earning per Share
(EPS), used in this study -the financial ratios for pre-merger and
post-merger. The result obtained after the analysis showed that merger
and acquisition act as a means for growth and survival and improvement
of earning per share of the banks. Based on this, the study recommends
that firms should re-train and reeducate its employees on the new
company’s culture so as to ensure a smooth transition and improved
processes.
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of Study
Growth is necessary to determine the
performance and continuity of any business organization. Without growth,
a business can hardly survive and attract funds from shareholders. The
use of merger and acquisition as a growth and survival strategy in an
economy like Nigeria appears to be on the increase in recent times. This
is not surprising, considering the large number of business failures as
result of adverse micro and macro economic climate (Igweike, 2008). In
the face of such hostile business climate, however, some business
organization that belongs to the “wise group’’ started thinking of how
to pull their resource together by the way of merger and acquisition as a
survival cum growth strategy.
Business merger and acquisition has
played an important role in the growth and survival of many firms in
Europe, USA, and Nigeria. Firms are less likely to grow through mergers
and acquisitions when stocks are booming (Beckenstein, 1979).
Aggregate financial market conditions do
not impact on the nature of merger or acquisition. The relation between
GDP growth and growth of firms through mergers and acquisitions is
positive when firms seek immediate increases in production capacity in a
growing economy. The desire for firm to grow through a merger or an
acquisition might in turn be tempered by bad business conditions. In
overall the empirical evidence between GDP growth and growth of firms
through mergers and acquisitions is limited and mixed (Beckenstein,
1979).
Industry variables are operationalized by
assessing concentration and sales growth in the industry. According to
Luypaert (2008), in highly concentrated industries, firms tend to
recognize the impact of their policies and actions on one another. This
could influence reactions to changes in competitive behavior like
quantity restrictions, tacit collusion and horizontal mergers and
acquisitions to increase the concentration within an industry which may
help firms to realize market power. Thus, a positive relation between
industry concentration and external growth may arise particularly in
related mergers and acquisitions. Conversely, when the industry is
already highly concentrated, it could have a lower incidence of mergers
and acquisitions as there is less room left for further consolidation.
Also, antitrust authorities may closely scrutinize newly planned deals
when industries are already highly concentrated. Large and profitable
firms often have or can better access financial resources that are
needed to acquire other firms. Moreover large firms are expected to
engage more in diversifying mergers and acquisitions as there may be few
opportunities left for growth in their own industry ceteris paribus.
These financial resources can also create value when used to acquire a
financially constrained target firm thus a positive relation between
profitability, firm size and merger and acquisition (Gaughan, 2002).
1.2 Statement of Problem
In height of the confusion and tumults of
the modern business environment globally, some firms have folded up
while others only managed to keep afloat. It is but interesting to
observe that in the midst of such unfavorable business environment, some
enterprises do not merely survive but post super profit. The logical
question is what factors could account for the divergent fortunes of
some firm of identical size and status in the same industry and
operating in the same economy?
Merger and acquisition has become one of
the fashionable surviving strategy for many companies.It is therefore,
the intention of the study to investigate the effect of merger and
acquisition on the performance of some selected banks in Nigeria.
Further more the study will also seek to
establish any possible relationship as otherwise between profitability
of a company or increase in its earning per share and its merger and or
acquisition scheme.
At this junction, it may be pertinent to
acknowledge the view of some experts that many business fusion and
acquisition had often resulted in disappointment, as the profit level of
the business organization went down. Should this be, the organization
wishing to diversify or expand its operation would be compelled to seek
out any ailing firm with suitable production plant and technology as
well as good distribution network.
1.3 Objectives of Study
The study is a deliberate effort to
evaluate merger and acquisition as a strategy of survival and growth.
The objectives of the study include:
- To appraise the financial position of the banks before and after the mergers and acquisitions.
- To know whether these banks selected has grown and survived through mergers and acquisitions.
- To find out whether the profitability of these banks has grown as a result of the merger and acquisition.
1.4 Statement of Hypothesis
The hypotheses formulated for this study are:
- Ho: Corporate firms have not grown and survived through mergers and acquisitions.
Hi: Corporate firms have grown and survived through mergers and acquisitions.
- Ho: The earning per share of the banks has not improved since the mergers and acquisitions.
Hi: The earning per share of the banks has improved since the mergers and acquisitions.
1.5 Scope and Limitation of Study
This study evaluates corporate growth and
survival through mergers and acquisition with special reference to
Access bank and First City Monument Bank. The study will not cover the
entire banks that were merged and acquired, due to time constraint and
finances. Time constraint poses a problem since it will be an uphill
task to visit all the banks that were merged since they are dispersed
all over the country.
Finance; due to lack funds the researcher
may not be able to visit all the branches of the banks selected for
study. Thus, the materials required for the study may not be easily
collected. Hence the researcher will base her conclusion(s) on the
findings from the two banks selected for the study.
1.6 Significance of Study
With the recent increase in the incidence
of investigation and bankruptcy of corporate firms together with
dwindling economic situation of the country, there is need for the
examination of the effect of business merger and acquisition in the
performance of Nigeria business organization. It is however believed
that with the study of the companies that are involved with the strategy
of merger and acquisition as a means of survival, one would be able to
assess the profitability and viability of the strategy being widely
adopted in the Nigeria business environment as a survival cum growth
strategy.
- Investors: This study will benefit the investor with regards to assessing the financial position of the firm.
- Management: Results obtained will help management to assess the effect of merger and acquisition on the performance of the company.
- Researcher: This study will serve as a secondary source of data for research purposes.
It is in the light of the foregoing that the subject of this study is considered very significant.
1.7 Definition of Terms
Merger: A merger is a
process where two previously autonomous companies combine to form a
larger company under the common control of a new company comprising of
all or a substantial number of the shareholders of both companies. As a
result of this arrangement a new company is thereby formed.
Acquisition: An
acquisition may be defined as transactions or a series of transactions,
where a person (individual, group of individuals, or company) acquires
control over the assets of a company either directly or indirectly by
obtaining control of the management of such a company.
Growth: This is the process of increasing or developing in size.
Survival: This is the state of continuing to live or to exist.
Corporate Firm: This means a business organization of people who work as a team towards achieving an objective.
Conglomerate: This is
when two firms in completely different industries merge, such as a
brewing company merging with a high technology company. For example,
Nigerian Brewery
(NBL) has diversified its businesses through mergers and acquisitions, allowing NBL to get into new areas.
Pre-merger: This is the period before the merger arrangement, where the individual companies have separate identities.
Post-merger: This period after merger arrangement has occurred and a new company has been formed.
1.8 A Brief History of Access Bank:
Access Bank Plc is a full service
commercial bank with headquarters in Nigeria and operations cross
Sub-Saharan Africa and the United Kingdom. It was incorporated in
February 1989 as a privately owned financial institution and commenced
banking operations in May 1989. It was listed on the Nigerian Stock
Exchange in 1998. The Bank’s Over the Counter (OTC) Global Depository
Receipts (GDRs) are traded on the London Stock Exchange.
In deploying products and services,
Access Bank adheres to responsible business practices and readily
commits resources to social investments in fulfillment of its corporate
social responsibility convictions. The Bank has more than 1,000,000
investors. The Bank’s Shareholders’ fund is in excess of US$1.2 billion
and its strategic intent is to rank among the top 3 Nigerian banks by
2012. Access bank is a full service commercial bank with a network of
over 100 branches and service outlets. In 2005 it acquired Marina and
Capital Bank (the former Commercial Bank- Credit Lyonnais Nigeria). The
Bank demonstrates exemplary performance in its financial and
non-financial disclosures. Its strengths include a highly diverse Board
membership; competent, dynamic and responsible management; strong
economic value and good ethical practices and transparent processes. The
list of international organizations that are in partnership with Access
Bank Plc includes the Netherlands Development Finance Company (FMO),
the International Finance Corporation (IFC), Visa International, US EXIM
and China EXIM Bank. The understanding and commitment of the Bank’s
employees, over 850,000 Shareholders, millions of customers and several
partners across the world have been critical to Access Bank’s progress
and success. The impact of business merger with Intercontinental Bank is
multidimensional and have resulted in geometrical growth across key
performances.
1.9 A Brief History of First City Monument Bank
First City Monument Bank (FCMB) is a full
service banking group, headquartered in Lagos, Nigeria. FCMB is the
flagship company of the First City Group, one of Nigeria’s leading
comprehensive financial services providers. From its early origins in
investment banking as City Securities Limited in 1977, FCMB (established
in 1982) has emerged as one of the leading financial services
institutions in Nigeria, a top 10 bank with subsidiaries that are market
leaders in their respective segments. FCMB was incorporated as a
private limited liability company on 20 April 1982 and granted a banking
license on 11 August On 15 July 2004, the Bank changed its status from a
private limited liability company to a public limited liability company
and was listed on the Nigerian Stock Exchange by introduction on 21
December 2004. During the consolidation of 2005, the bank merged with
Cooperative Development bank Limited, Nigerian -American Bank limited
and eventually acquired Midas Bank limited.
The Bank completed the acquisition of Fin
bank Plc in February 2012. Following the acquisition, the FCMB Group
now has 1.7 million customers, 330 branches and cash centers spread
across every state of the Federal Republic of Nigeria and a presence in
the United Kingdom (through its FSA-authorized investment banking
subsidiary, FCMB UK) and a representative office in the Republic of
South Africa.
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