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  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.

CHAPTER ONE

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:

i)       To appraise the financial position of the banks before and after the mergers and acquisitions.

ii)      To  know  whether  these  banks  selected  has  grown  and survived through mergers and acquisitions.

iii)     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:

1)      Ho:   Corporate   firms   have   not   grown   and   survived through mergers and acquisitions.

Hi:    Corporate firms have grown and survived through mergers and acquisitions.

2)      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.

1)       Investors:   This   study   will   benefit   the   investor   with regards to assessing the financial position of the firm.

2)       Management: Results obtained will help management to assess the effect of merger and acquisition on the performance of the company.

3)       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

1983. 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 Finbank 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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