The Role of Mergers and Acquisitions in Corporate Growth and Developments

ABSTRACT

The broad goal of this study centred on the role of mergers and acquisitions in corporate growth and developments using Access Bank Plc Abuja as case study. Survey research designed was employed for the study with the aid of convenient sample technique, thirty-six (36) participant who staff of Access Bank Plc in Abuja was selected for the study. Well structured questionnaire was issued to the participant of which 30 were returned and validated for the study. Descriptive analysis was presented using frequencies and tables which provided answers to the research question. Data was analyzed in simple percentage respectively. Findings of the study reveals that Reasons why organization opt for merger and acquisition includes Economies of Scale, Synergy, Diversification of products and services, eliminations of competition and better financial planning The study concludes that Merger and Acquisition is an effective and efficient growth strategy in business organization. The study therefore recommends that the management of companies that have adopted merger and acquisition should identify high-risk areas of their business and make sure they receive adequate attention on-an-on going basis, this should be done for strategic positioning. More so, there should be a system integration of the companies that adopted merger and acquisition as a growth strategy in their business organization to avoid disintegration and collapse of the strategy.

 

CHAPTER ONE

INTRODUCTION

Background of the study

Business Organizations are established to achieve certain corporate objectives including corporate growth and increases in profitability. Growth is a major yardstick by which the success of a business firm is measured. Given that business organizations operate in a dynamic macroeconomic environment such growth is threatened in periods of volatile economic instabilities (Weston and Copeland, 1989). The resultant effect of the recent world economic meltdown is a financial crisis among corporate organizations. One strategy open to corporate organizations during the periods of economic crisis is Merger and Acquisition. Companies have been combining in various configurations since the early days of business. Nevertheless, joining two companies is a complex process because it involves every aspect of both companies. For instance, executives have to agree on how the combination will be financed and how power will be transferred and shared. Also the companies must deal with layoffs, transfers, changes in job titles and work assignments etc (Weber, 2005). The most popular forms of business combination are mergers, acquisition and consolidations.

According to Gaughan (2007), a merger is a combination of two corporations in which only one corporation survives and the merged corporation goes out of existence. In a merger, the acquiring company assumes the assets and liabilities of the merged company. Moreover, although the buying firm may be a considerably different organization after the merger, it retains its original identity. An acquisition occurs when one company takes a controlling ownership interest in another firm, a legal subsidiary of another firm, or selected assets of another firm such as a manufacturing facility . In other words, according to DePamphilis, (2003) an acquisition is the purchase of an asset such as a plant, a division, or even an entire company . On the surface, the distinction in meaning of “merger” and “acquisition” may not really matter, since the net result is often the same: two companies (or more) that had separate ownership is now operating under the same roof, usually to obtain some strategic or financial objective. Yet the strategic, financial, tax, and even cultural impact of a deal may be very different, depending on the type of transaction.

 Statement of the problem

The current economic situation in Nigeria can best be described as very turbulent with the problems reflecting more in the corporate organizations. The dimension of the problem is such that corporate organization in the country are fast losing their market share, in addition to facing continuous operating losses and liquidity crisis leading to inability to meet the demands in the competitive market.Other major challenges facing corporate organizations in the country include low turnover, low profit, low dividend payout, declining growth rate and high operating cost. Having in mind, that there is increase of inter-dependence of markets for various goods and services as well as increasing foreign competition, Osaze (2004) opines, it is obvious, that today we live in a time of significant changes. That’s why many companies are expanding their geographic reach and grow.

Intriguingly, Hit Harrison and Ireland, (2000) is of the opinion that companies which choose to grow, normally try to take an additional market share, reach new customer base, create economic profits, provide returns for their stakeholders, etc., while companies which choose not to grow, are obviously doomed to failure due their loss of customers and market shares, destroyed shareholder and stakeholder values and so on. Mandi (2003) contributing in this regard said that in the last three years, growth through acquisition has been a critical part of the success of many companies operating in the new economy moreso, merger and acquisition has been the single most important factor in building up their market capitalization”.

There are wealth of literature and studies on Mergers and Acquisitions but very few of these studies, if any, focused on the effect of mergers and acquisitions on corporate growth, efficiency and profitability. This study fills this research gap by addressing the issue of whether merger and acquisition is the best solution to bail out an organization in financial crisis and the effects of merger and acquisition on corporate profitability

Objective of the study

The broad objective of this study is to examine the role of mergers and acquisitions in corporate growth and developments. Specifically, the study seek to:

1. To examine the reason for opting for merger and acquisition by cooperate organization?
2. To examine how Merger and Acquisition affect the growth cooperate organizations
3. To ascertain if merger and acquisition serves as a viable option for effective performance in corporate organization.
4. To ascertain if consolidation strategy improves productive behavior among employees of the acquired company

 Research Question

1. What are the reason for opting for merger and acquisition by cooperate organization?
2. How does Merger and Acquisition affect the growth cooperate organizations?
3. Does merger and acquisition serves as a viable option for effective performance in corporate organization?
4. Does the consolidation strategy improves productive behavior among employees of the acquired company

 Significance of the study

The research work is significant in that it will be very useful to economic watchers and the interested public; it will provide some insight into the process of merging and banking administration in the era of reforms. It will also help to show how merger and acquisition is responsive to the determination of stable economic growth. It will serve as a body reserved knowledge to be referred to by scholars and researchers. Finally, the study will provide adequate information on the existing body of knowledge on people’s problem in a merger process. The study will also serve as a reference material for scholars and student who wishes to conduct further studies in related field.

Scope of the study

The scope of this study is to examine the role of mergers and acquisitions in corporate growth and developments. The study will further examine the reason for opting for merger and acquisition by cooperate organization and examine how Merger and Acquisition affect the growth cooperate organizations. The study among other thing ascertain if merger and acquisition serves as a viable option for effective performance in corporate organization and well determine if consolidation strategy improves productive behavior among employees of the acquired company. The study is however delimited to Access Bank Plc in Abuja.

 Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited to Access bank Plc in Abuja. as few respondent were selected to answer the research instrument hence findings of the study cannot be generalize to other corporate organization. However, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.