MERGER AND ACQUISITION IN THE BANKING INDUSTRY IN NIGERIA
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MERGER AND ACQUISITION IN THE BANKING INDUSTRY IN NIGERIA
The banking industry is undergoing upheaval as a result of the economic downturn. Policymakers are moving towards openness, competition, and market discipline as they attempt to increase economic efficiency and better allocate resources to address the issue of the economic depression.
Deposit Money Banks in Nigeria reacted to the situation by focusing on business process reengineering (BPR), management strengthening, corporate refocusing, mergers, and acquisitions in order to survive the struggling economy.
Mergers and acquisitions are the general term for this procedure. The study made an effort to address the problems, information, and environmental elements related to the survival of Nigerian banks.
Five performance metrics, including First Bank of Nigeria Plc’s total assets, total deposits, loans and advances, profit before tax, and shareholders’ funds, were used to assess the research’s influence on banks.
The study examined the positions of these indicators before and after the bank-led purging effort for survival as well as the influence on the overall banking system while taking into account the impact of globalisation on the financial market in particular and the economy as a whole.
In Chapter 4, First Bank’s financial statement is presented and analysed using a chart, tables, bar chart, and graph. In the graph, the first five years’ results (2001–2002–2003–2004–2005) correspond to the years before mergers and acquisitions were legalised,
while the remaining five years’ results (2006–2007–2008–2009–2010) correspond to the years after mergers and acquisitions were legalised for the purpose of testing the hypothesis. The profitability of Nigerian banks was found to be positively impacted by mergers and acquisitions in general.
This is how the government has an immediate effect.Following the recapitalization programme to strengthen their capital base to N25 billion, forced bank consolidation occurred in 2005.
Recommendations show that mergers and acquisitions improved the bank’s performance as shown by the performance indices, therefore they shouldn’t be viewed as an end in and of itself but rather as a means to an end. In order to continuously evolve, the current procedure should be reviewed and modified.
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The preferred or best financial method for rescuing businesses from severe financial difficulties is merger and acquisition.
Mergers would provide such businesses a second chance to start anew under a new management structure or system, which would need to be extremely organised and have the financial resources to launch and maintain the business.
However, when we use the term “merger,” we mean the combination, merging, or fusing of two or more formerly independent businesses into a single organisation or business with a common ownership and management.
A merger is not possible without the coming together of these businesses. That is, the process of combining these companies occurs as a result of the liquidation of one company. Acquisition is not a joining of interests, according to paragraph 3 of the International Accounting Standard No. 22 (1 As 22).
In its most straightforward form, an acquisition occurs when one firm buys the assets and knowledge of another, the acquired business maintains its legal existence and carries on with its operations, and the acquirer company assumes the role of a holding company for the acquired business.
The difference between the two definitions is that while there is a fusion in a merger, both the acquired and the acquirer companies continue to exist in an acquisition.
The Platinum & Habib Bank’s merger to establish Bank PHB is a superb illustration of a merger. The Access Bank’s acquisition of the erstwhile Intercontinental, which is now Access Bank Plc, is another example of an acquisition.
What is happening in Nigeria right now makes it necessary to pool resources and utilise them more effectively in order to assure economic rationalisation, survival, and expansion, which is what the majority of banks in Nigeria are currently doing.
In order to avoid the occurrence of company liquidation and bankruptcy as well as to lower unemployment, merger and acquisition is the most beneficial and efficient technique to combine the synergies in similar organisations.
This gives businesses access to development that, if they were to rank alone on the list, could be challenging to achieve with their own internal resources.
It also ensures that employees will stay with the business for the long term. Additionally, because there are now more shared ideas and less competition, the main goals of the majority of businesses, which are expansion and profit maximisation, have been accomplished.
To attain the best growth, mergers and acquisitions may be the only option.
During the period of structural adjustment, many businesses failed, and those that did survive were able to do so by meeting the objectives and criteria that had been established as well as by lowering production costs. As a result, it became vital for businesses to pool their resources in order to endure and expand.
Finally, in order to expand their reach and achieve their goals of companies in other nations that can produce adequate and high-quality goods and services to meet domestic demand and for export,
businesses should encourage merging with one another or acquiring one another in order to keep up with the new form of advanced technology.
1.2 STATEMENT OF THE PROBLEM
Every successful business survival strategy has at least one issue, and some of the issues with this study are as follows:
(i) The incapacity of the involved corporations to hire knowledgeable, experienced advisors to run the company. Because of these issues, the majority of businesses looking to engage in mergers and acquisitions do so.
They lack skilled, experienced experts who can advise them on how to do this business.
Because the majority of these few qualified consultants are so expensive, money is another significant issue.
(ii) A restriction or the presence of good will whose assessment raises questions. Every organisation that seeks to acquire another or seeks to be acquired focuses on good will, which means that good will must exist.
(iii) Choosing the best model or methodology based on the associated costs. The firms are quite concerned about how this would affect cost allocation, cost determination, future cash inflows, and other factors.
Most of these approaches/models are not up to the standards of the banks, and many businesses or organisations (including banks) choose or rather prefer to use models or processes that are relatively expensive or loss-prone.
(iv) Financial issues occasionally prevent the concerned corporations from successfully implementing mergers and acquisitions.
Even if the relevant forms have the necessary technical capacity, they might not have the necessary financial resources to produce the expertise.
(v) Government policy: In a capitalist society, controlling production and other commercial operations is the government’s main responsibility.
The government implemented policies that were unable to keep up with advancements in the financial industry, such as the growing significance of the shadow banking sector.
1.3 OBJECTIVES OF THE STUDY
The goal of the study is to draw attention to how crucial mergers and acquisitions are to the survival and development of Nigerian businesses. In order to accomplish this, the research will:
i. Describe the advantages of mergers and acquisitions for the growth of the Nigerian economy.
ii. Research the industries in which mergers and acquisitions can be beneficial in Nigeria.
Investigate the reasons why indigenous Nigerian businesses do not participate in mergers and acquisitions and other similar business combinations.
iii. Discover techniques to promote mergers and acquisitions among the majority of Nigerian companies as a sound system of corporate strategy for enhancing their objectivity.
1.4 SIGNIFICANCE OF THE STUDY
i. By raising knowledge of the research topic through seminars, workshops, and symposiums, the study aims to give a means of survival growth for current and future enterprises in Nigeria. It also reviews businesses that are suited for entering into such an arrangement.
Ii The understanding of mergers and acquisitions, as well as other business combinations, in the business community as a way out of financial distress will enhance the nation’s economic development.
In terms of an economic downturn, the advice given will be of utmost importance to the company and other businesses that are similar to it.
With reference to a few banks in Nigeria, it will highlight or pinpoint some of the issues that come with not using mergers and acquisitions as a survival tactic.
iv. It will aid in identifying the root causes of these issues and offer appropriate solutions as antinodes to those problems that have been identified.
1.5 RESEARCH QUESTIONS
Numerous questions will be raised by this study in order to gather data for the development of hypotheses and to define the parameters of this research project.
i. Does the topic of forms merging or one organisation buying another have any advantages?
ii. Does the problem with mergers and acquisitions result in job losses and the development of monopolistic forces in the Nigerian economy?
iii. Has the banking business been successful and efficient since mergers and acquisitions were first implemented?
iv. In how many banks are these mergers and acquisitions taking place?
v. Has the introduction of (mergers and acquisition in the banking business) maximised share price, profitability: (Stream of Earnings) dividend, cost of equity (Ke) and other factors? Has it decreased or increased the interest rate?
1.6 RESEARCH HYPOTHESES
I. Hypothesis
Ho: The capital structure of banks in Nigeria is not significantly affected by mergers and acquisitions.
Hi: Bank capital structures in Nigeria are significantly impacted by mergers and acquisitions.
II Hypothesis
Ho: Mergers and acquisitions do not result in bank stability (they can instead hinder the long-term expansion and survival of Nigerian banks).
Hi. Banks become more stable as a result of mergers and acquisitions, which may also help Nigerian banks develop and survive in the long run.
Third Hypothesis
Ho: Acquisitions and mergers don’t increase bank profitability
Hello: Acquisitions and mergers increase bank profitability.
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