IMPACT OF MERGERS AND ACQUISITION ON BANK GROWTH AND EFFECTIVENESS.
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IMPACT OF MERGERS AND ACQUISITION ON BANK GROWTH AND EFFECTIVENESS.
Chapter one
INTRODUCTION
1.1 Background of the Study
Mergers and acquisitions are a fascinating topic of finance to examine. A business structural transformation. It is a crucial strategic choice made by the management of any organisation, and mergers and acquisitions are recognised as one of the approaches to remedy declining bank performance.
A merger or acquisition is a combination of two or more businesses in which all but one of the merging companies ceases to exist while the serving company, typically the acquiring company, continues to operate under its original identity.
Where the acquisition does not have the consent of the acquirer’s management. It is referred to as a takeover, which can be protracted and hostile; on the other hand, an amalgamation or consolidation involves the combination of all or a portion of the assets and liabilities of two or more business units or companies to form a new company, with all of the combining companies being dissolved while their operations are taken over by the new one. In a consolidation, the merging companies are often of comparable size.
Mergers and acquisitions began in Nigeria at the turn of the century, with the British Bank of West Africa (BBWA) acquiring the assets and liabilities of the first bank organisation in Nigeria (African Banking Consortion – ABC) in 1984, now known as First Bank Nigeria Plc.
A form of “in-house merger” between conservative finance businesses occurred in 1990 with little or no publicity. It wasn’t until 1996 that the country saw what could be described as a full-fledged merger of one bank with another.
Guarantee Trust Bank (GTB Plc) acquired Magnum Trust Bank Limited in its entirety. Following this, Bank Guarantee Limited acquired Equity Bank Limited (NIMBL) and Merchant Bank of Commerce Limited, now known as Continental Trust Bank Plc, both in the same year (1996).
The foregoing occurrence was a favourable omen, since it contributed to the reduction of distressed and bankrupt banks at the time. It is encouraging to see that the country’s government and monetary authorities are currently setting a positive example in this important field of finance. (Merger and Acquisition).
It is worth noting that mergers, acquisitions, and takeovers have emerged as key strategic options in the Nigerian corporate environment in recent years in response to the economic reform programme’s empowerment and development plan (Needs). Despite the fact that similar incidents have occurred in Nigeria in the past, the number of cases increased in 2005.
The immediate catalyst was the CBN’s recommendation to the banking industry that each bank enhance its shareholders’ capital by N25 billion by December 31st, 2005, recognising the enormous hardship of raising such money from the capital market imposed by the existence of some banks.
As a result, you may choose the merger and acquisition option. Mergers and acquisitions have proven to be a popular strategic option for corporate change and growth around the world.
According to financial terms, in just the first five weeks of 2005, more than 150 merger and acquisition deals were announced in the United States.
The popularity of merger and acquisition was confirmed by an accentor in 2005, which found that 70 percent of the sampled executives in larger companies worldwide were either undergoing mergers and acquisition transactions at the time of the surveyor or planned to do so during the year.
However, the reported attractiveness of mergers and acquisitions in the business sector does not always hold true. In Nigeria, the Central Bank of Nigeria’s banking sector consolidation and reform plan recently decreased the number of commercial banks in the country from 89 to 25 and resulted in a significant surge in merger and acquisition activity in an industry, the first of its kind in the country’s corporate history.
Furthermore, the Federal and State Government’s Programmes of privatisation of government-owned enterprises has in recent years stimulated substantial acquisition transactions involving private investors as buyers and government as sellers of industrial assets.
The early 1970s was similarly an era of frenetic acquisition resulting from the Nigeria Enterprise Promotion Act of 1973, which limited or excluded foreign participation in certain sectors of the economy and compelled
However, as the economy transforms, the private sector becomes the primary driver of growth. These dynamic approaches to corporate diversification and market consolidation would gain increasing importance in the Nigerian business environment.
The purpose of this study is to analyse the influence of mergers and acquisitions on the growth and effectiveness of Nigerian banks.
1.2 Statement of Problems
The Nigerian banking sector has seen significant changes during the past year in terms of the number of institutions, ownership structure, and depth and breadth of operations.
The developments have been substantially impacted by the challenges posed by financial sector deregulation, which includes the liberalisation of interest rates, the elimination of credit calling, and the implementation of open market operations and new bank licencing.
Furthermore, in the face of various economic reforms, economic globalisation of operations, technological innovation, the introduction of a universal banking system, and the adoption of international standards, which implies the absence of barriers to providing banking services, will increase competition in the financial service sector (Sam Ayininuola 1999).
Distress and collapsing management structures Corporate problems are not restricted to the banking sub-sector; they have also affected other sectors of the economy, and the Nigerian economy as a whole is in bad shape.
A number of corporate organisations that rely on imported commodities have been unable to operate profitably for several years as a result of the naira’s depreciation. The finance industry is the worst hit, causing tremendous distress.
1.3 PURPOSE OF STUDY
The primary goal of this research is to investigate the influence of mergers and acquisitions on bank expansion and effectiveness in Nigeria.
However, given the benefits of mergers and acquisitions, the specific objectives of this study are to:
(i) To assess the impact of mergers and acquisitions on banks.
Growth and development.
ii) Identify the issues and causes of merger and acquisition failures.
iii) Evaluate recent banking mergers and acquisitions.
iv) To highlight the causes of banking distress and how to prevent cases.
v) To demonstrate the preference for merger and acquisition choices over liquidation options.
1.4 RESEARCH QUESTIONS.
The following research question can be raised regarding the study.
i) How do mergers and acquisitions affect the growth and development of banks?
ii) What are the main reasons of hardship in bank liquidations?
iii) Is merger and acquisition a better alternative to distress or liquidation?
iv) What are the challenges connected with mergers and acquisitions?
v) What can the government do to improve mergers and acquisitions?
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