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 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 re-educate its employees on the new company’s culture so as to ensure a smooth transition and improved processes.
- 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).