OPERATIONAL AND FINANCIAL CONSEQUENCES OF MERGER AND ACQUISITIONS (Case: Nigerian Banking Sector)

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ABSTRACT

The aim of this thesis is to establish the operational and financial challenges in mergers and acquisitions using the Nigerian banking sector as a case study. And also to proffer solutions on how these challenges can be mitigated or reduced.

The Nigerian banking sector has undergone several consolidation- mergers and acquisition and consolidation in the banking sector is still an ongoing process. The operational challenges experienced at the early years of operations of merged banks include: Information Technology (IT) issues, Human Resource (HR) issues, Communication issues and amongst others. The Financial issue is majorly on the maximization of the shareholders wealth of the merging banks.

The research methodology used was both quantitative and qualitative methods. For the quantitative aspect, online questionnaires were sent to employees of four different banks that have undergone consolidation process (two banks that merged and two banks that were acquired by other banks) and the feedback from the respondents were critically analyzed with the underlying theories. The qualitative method was the review of financial reports of one of the banks prior to merger/acquisition and after the merger/acquisition.

On a final note, conclusion was given.


Keywords: Operational, Financial, Consequences, Mergers, Acquisitions and Bank


TABLE OF CONTENTS

Thesis Abstract
Tables and Figures
Abbreviations

1  INTRODUCTION
1.1 Background of the study
1.2 The Statement of Problem
1.3 Scope of the Study

2  MERGERS AND ACQUISITIONS
2.1 An Overview of Mergers and Acquisitions
2.2 Types of Mergers and Acquisitions
            2.2.1 Horizontal Mergers and Acquisition
            2.2.2 Vertical Mergers and Acquisitions
            2.2.3 Conglomerate Mergers and Acquisitions
2.3 Motives of Mergers and Acquisitions
            2.3.1 Efficiency theory
            2.3.2 Monopoly theory
            2.3.3 Valuation theory
            2.3.4 Empire-building theory
            2.3.5 Process theory
            2.3.6 Raider theory
            2.3.7 Disturbance theory
2.4 Other theories of Mergers and Acquisitions
            2.4.1 Internalization, Technical Competence and Transaction Cost Theories
            2.4.2 Value Increasing and Value Decreasing Theories
2.5 Advantages and Disadvantages of Mergers and Acquisitions
2.6 Mergers and Acquisitions Failures
            2.6.1 Lack of Research
            2.6.2 The Hubris Behavior
            2.6.3 Poor Organization Fit
            2.6.4 Mismatch in Size
            2.6.5 Poor Strategic Fit
            2.6.6 Excess Premium
            2.6.7 Poor Cultural Fits
            2.6.8 Lack of Immediate Integration
            2.6.9 Lack of Proper Communication
2.7 Mergers and Acquisitions Process
2.8 Trends in Mergers and Acquisitions
            2.8.1 Global Trends in Mergers and Acquisitions
2.8 Trends in Mergers and Acquisitions
            2.8.1 Top 10 Mergers and Acquisitions across the World and Europe

3  CONSEQUENCES OF MERGERS AND ACQUISITIONS
3.1 Operational Consequences of Mergers and Acquisitions
            3.1.1 Human Resource Consequences
            3.1.2 Psychological Consequences
            3.1.3 Information Technology (IT) Consequences
            3.1.4 Culture Clash
3.2 Financial Consequences of Mergers and Acquisitions
            3.2.1 Profitability Ratios
            3.2.2 Liquidity Ratios

4  NIGERIAN BANKING INDUSTRY
4.1 Mergers and Acquisitions in Nigerian Banking Industry (Banking Sector Reforms of 2004)
4.2 Impact of Reform in Nigerian Banks- Through Mergers and Acquisitions

5  RESEARCH METHODOLODY
5.1 Research Methods
5.2 Data Collection and Implementation
5.3 Scope and Limitation
5.4 Reliability and Validity

6  RESULTS
6.1 Results for Operational Challenges
            6.1.1 Descriptive Information of Respondents
6.1.2  Research Results
6.1.3  Respondents Opinions and Recommendations
6.2 Financial Results
6.2.1  Profitability Ratios
6.2.2  Liquidity Ratios

Table 8: Financial Performance of Fidelity Bank Plc. before merger, base year and post-merger years

7  CONCLUSION AND RECOMMENDATIONS 



1  INTRODUCTION

Mergers and Acquisitions are the consolidation processes of companies where two or more companies come together to form a single entity. Merger is simply means the coming together of two or more companies with the aim of expanding business operations while acquisition is when a company takes over the business operations of another company.

The number of companies that are being consolidated either through mergers or acquisition has been on the increase globally and since this involves the coming together of two or more different companies with different business culture, there are some operational and financial challenges that are usually experienced in the early period of new entity before the parties are fully integrated together.

Nigeria is however not an exception to the wave of mergers and acquisition, as this is experienced largely in the banking, automobile, information and communication technology, insurance, capital market and securities sectors of the economy. The researcher experienced the operational challenges in one of the Nigerian banks that underwent the merger process and these challenges impacted on the performance of the employees.


1.1     Background of the study

The Nigerian banking industry has gone through and still continues to experience consolidation processes in the form of both mergers and acquisitions and presently there are about 20 commercial banks from the initial number of over 120 banks. The mergers and acquisitions in the banking industry are seen to have contributed to a sound and financially stable banks in Nigeria.

The operational challenges experienced at the early years of operations of merged banks include: Information Technology (IT) issues, Human Resource (HR) issues, Communication issues and amongst others. The Financial issues are majorly on the maximization of the shareholders wealth of the merging banks.


1.2    The Statement of Problem

Though the banking industry in Nigeria has been transformed through mergers and acquisitions, there are some operational challenges experienced through M&A and these include: human resource issues, psychological issues, communication issues and information technology issues. The financial challenges is majorly on the maximization of the shareholders wealth of banks after mergers or acquisitions

The research work is on the operational and financial challenges in Nigerian banks that have undergone both mergers and acquisitions and proffer solutions on how these challenges (especially the operational ones) can be mitigated or reduced.


1.3    Scope of the Study

This research work focuses on the operational and financial challenges in mergers and acquisitions using the Nigerian banking sector as a case study. The scope however will cover four Nigerian banks that have undergone mergers and acquisitions- two of the banks experienced mergers while the remaining two experienced acquisition, to see the operational challenges that the employees of the banks experienced during the early operation of the new bank. The financial challenges on the other part is on the maximization of the shareholders wealth after the mergers and or acquisitions

The aim of this research is to provide information on the operational challenges include: human resource issues, psychological issues, information technology issues, cultural differences as a result of the M&A. The financial challenges are on the triangle of healthiness of the banks by considering the profitability, liquidity and solvency of the bank before and after M&A.

The information provided will help banks in Nigeria that intends to merge with or acquired by another bank on how they can design strategies that will reduce or eliminate these operational challenges while for the financial challenges, it will provide information to shareholders of Nigerian banks that intends to merger with or acquired by another bank if their shares will be maximized or not.

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This is a General Thesis for both Undergraduate & Postgraduate Studies. The complete research material plus questionnaire and references can be obtained at an affordable price of N3,000 within Nigerian or its equivalent in other currencies.


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