Merger and Acquisitions as a Survival Strategy in the Banking Sector
CHAPTER ONE
OBJECTIVE OF THE STUDY
The study is aimed at highlighting the importance of mergers and acquisition in the survival and growth of Nigeria companies. Therefore, to achieve this, the research will:
- State the benefits of mergers and acquisition in Nigerian economic development.
- Investigate into the business in which mergers and acquisition can be useful in Nigeria.
- Explore into reasons why Nigerian indigenous companies are not involved in mergers and acquisition and other related business combinations.
- Find ways of making mergers and acquisition known to most Nigerian companies as a good system of business strategy towards the improvement of their objectivity.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Imala (2005) observes that banking is dynamic and it has evolved over the years, changing with developments and the needs of the society in Nigeria. Alao (2010) argues that Nigerian banks adopted different strategies to achieve the stipulated minimum capital base of N25billion during the consolidation of banks in 2004-2005 which include mergers and acquisitions. However, mergers and acquisitions were not as common in Nigeria before the early 1980’s as they are now. This may be because the Nigerian economy before this period was enjoying a big boom and expansion making it possible for the organizations to carve out their own niches in their respective industries. Invariably, the Nigerian Companies Act (1968) now decomposed into the Companies and Allied Matters Act (1990), the principal statute regulating the existence, structure and powers of companies in Nigeria, never used the terms mergers and acquisitions, preferring instead, terms such as, ‘reconstruction’, ‘amalgamation’, ‘compromise’ and ‘arrangement’ to describe symbiotic relationships between two or more corporate entities. Orji (1990) observes that mergers and acquisitions are alien to the Nigerian culture unlike in Europe and America. According to him, mergers and acquisitions started in earnest in the 1980’s because of economic distress in Nigeria. This may be responsible for the relatively new Companies and Allied Matters Act 1990, which has incorporated mergers and takeovers in the document. Relevant sections indicating these are Sections 591-598. Many reasons are usually postulated for mergers and acquisitions with the most common being a growth strategy for competitive advantage. Wright, Kroll and Parnell (1996) look at different views of two schools of thought – acquisitions are not beneficial in a perfect market and acquisitions are beneficial as real market are imperfect. Adegbite (1989) looked at some of the legal implications of mergers and acquisitions and the roles to be played by the companies involved. One of the major considerations of mergers and acquisitions is economic advantage. As such, the importance of determining the financial health and value of the organizations involved cannot be over-estimated. Orji (1990) also stressed that the importance of financial advisers in guiding organizations through the complex process of mergers and acquisitions. Kaur & Kaur (2010) note that mergers and acquisitions in the banking industry are aimed at achieving economies of scale and scope. Whether it is finally realized or not, the reason for organization going into mergers and acquisitions is to realize gains, from stronger organizations, become more competitive and in most cases, survive in adverse economic conditions.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to merger and acquisitions as a survival strategy in the banking sector.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was on merger and acquisitions as a survival strategy in the banking sector. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of merger and acquisitions as a survival strategy in the banking sector
Summary
This study was on merger and acquisitions as a survival strategy in the banking sector. Four objectives were raised which included: State the benefits of mergers and acquisition in Nigerian economic development. Investigate into the business in which mergers and acquisition can be useful in Nigeria, explore into reasons why Nigerian indigenous companies are not involved in mergers and acquisition and other related business combinations, find ways of making mergers and acquisition known to most Nigerian companies as a good system of business strategy towards the improvement of their objectivity. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of selected banks in Uyo, Akwa Ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made HRMS, customer care officers, marketers and junior staffs were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
Many companies find that the best way to get ahead is to expand ownership boundaries through merger and acquisition for others separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, merger creates synergies and economies of scale, expanding operations while reducing costs. Investors can take comfort in the idea that a merger will deliver enhanced market power. However, it is worthy of mention that the underlining challenges before consolidation are still abound .The c challenges include poor portfolio risk management, poor corporate governance practices, avarice, over reliance on public sector funds, inadequate infrastructure, weak control mechanism, weak credit assessment skills, lack of professional acumen, fraud, corruption and favouritism.
Recommendation
Merger procedure should be streamlined by the courts. Therefore, the growing pre-occupation of the court with moral issues in the otherwise commercial undertaking, should be discarded. Once there is an economic justification for the exercise and prescribed statutory procedure followed, the merger scheme should be endorsed by the court.
REFERENCES
- Adegbaju, A. A. & Olokoyo, F. O. (2008). Recapitalization and bank’s performance: A case study of Nigerian banks. African Economic and Business Review, Vol.6 No.1, spring 2008.
- Adeyemi, K.S. (n.d.). Banking sector consolidation in Nigeria: Issues and challenges. Retrieved October 9, 2011 from http://www.unionbankng.com/adeyemi.pdf
- Ajayi, M. (2005). Banking sector reforms and bank consolidation: Conceptual framework. CBN bullion, Vol.29 No.2, April- June 2005.
- Alao, R. O. (2010). Mergers and acquisitions (M&As) in the Nigerian banking industry: An advocate of three mega banks. European Journal of Social Sciences, Vol.15, No.4, 2010.
- Allen, F. & Gale, D. (2003). Competition and financial stability. Journal of Money, Credit and Banking.
- Anthony, E. J. (2008). An evaluation of growth and merger and acquisition as strategic growth options in the Nigerian banking sector. A dissertation presented in part of consideration for the degree of MA in corporate strategy and governance, University of Nottingham, United Kingdom.
- Bakari, A. S. (2011). The trend and growth implications of bank recapitalization in Nigeria. African Journal of Business Management, Vol. 5, No. 14, July, 2011.
- Beck, T., Demirgue – kunt, A., & Levine, R. (2003). Bank concentration and crisis. NBER working paper No. 9921, retrieved from http://www.nber.org/papers/w9921
