EVALUATING CORPORATE GROWTH AND SURVIVAL THROUGH MERGERS AND ACQUISITIONS

EVALUATING CORPORATE GROWTH AND SURVIVAL THROUGH MERGERS AND ACQUISITIONS. (A STUDY OF SOME SELECTED BANKS IN NIGERIA).

ABSTRACT

This study ascertains the influence of merger and acquisition as a growth and survival strategy. The crisis facing so many corporate firms as a result of capital inadequacy has led to the collapsing of so many firms. As a result, it is the objectives of this study to evaluate the impact of merger and acquisition on growth and survival of corporate firms using banks as study, to ascertain whether the banks have grown and survived as result of merger and acquisition.  A survey research method was applied. Data were collected through primary and secondary sources. The population samples were drawn from two groups i.e. Access Bank and First City Monument Bank.  A judgmental sampling technique in which 45 and 50 of each samples were selected was adopted for convenience sake. Data were analyzed using “Z” test as an inferential statistics for testing of differences in perception of participants on merger and acquisition as a means of growth and survival and improving its earning per share. Ratios of the banks used for study were employed for evaluation purposes. A regression analysis was adopted to express the quantitative relationship among variables i.e. Return on Capital Employed (ROCE) and Earning per Share (EPS), used in this study -the financial ratios for pre-merger and post-merger. The result obtained after the analysis showed that merger and acquisition act as a means for growth and survival and improvement of earning per share of the banks. Based on this, the study recommends that firms should re-train and re-educate its employees on the new company’s culture so as to ensure a smooth transition and improved processes

CHAPTER ONE

INTRODUCTION

  • Background of Study

Growth is necessary to determine the performance and continuity of any business organization. Without growth, a business can hardly survive and attract funds from shareholders.

The use of merger and acquisition as a growth and survival strategy in an economy like Nigeria appears to be on the increase in recent times. This is not surprising, considering the large number of business failures as result of adverse micro and macro economic climate (Igweike, 2008).

In the face of such hostile business climate, however, some business organization that belongs to the “wise group’’ started thinking of how to pull their resource together by the way of merger and acquisition as a survival cum growth strategy.

Business merger and acquisition has played an important role in the growth and survival of many firms in Europe, USA, and Nigeria. Firms are less likely to grow through mergers and acquisitions when stocks are booming (Beckenstein, 1979).

Aggregate financial market conditions do not impact on the nature of merger or acquisition. The relation between GDP growth and growth of firms through mergers and acquisitions is positive when firms seek immediate increases in production capacity in a growing economy. The desire for firm to grow through a merger or an acquisition might in turn be tempered by bad business conditions. In overall the empirical evidence between GDP growth and growth of firms through mergers and acquisitions is limited and mixed (Beckenstein, 1979). Industry variables are operationalized by assessing concentration and sales growth in the industry. According to Luypaert (2008), in highly concentrated industries, firms tend to recognize the impact of their policies and actions on one another. This could influence reactions to changes in competitive behavior like quantity restrictions, tacit collusion and horizontal mergers and acquisitions to increase the concentration within an industry which may help firms to realize market power. Thus, a positive relation between industry concentration and external growth may arise particularly in related mergers and acquisitions. Conversely, when the industry is already highly concentrated, it could have a lower incidence of mergers and acquisitions as there is less room left for further consolidation. Also, antitrust authorities may closely scrutinize newly planned deals when industries are already highly concentrated.  Large and profitable firms often have or can better access financial resources that are needed to acquire other firms. Moreover large firms are expected to engage more in diversifying mergers and acquisitions as there may be few opportunities left for growth in their own industry ceteris paribus. These financial resources can also create value when used to acquire a financially constrained target firm thus a positive relation between profitability, firm size and merger and acquisition (Gaughan, 2002).

 

  • Statement of Problem

In height of the confusion and tumults of the modern business environment globally, some firms have folded up while others only managed to keep afloat. It is but interesting to observe that in the midst of such unfavorable business environment, some enterprises do not merely survive but post super profit. The logical question is what factors could account for the divergent fortunes of some firm of identical size and status in the same industry and operating in the same economy?

Merger and acquisition has become one of the fashionable surviving strategy for many companies.

It is therefore, the intention of the study to investigate the effect of merger and acquisition on the performance of some selected banks in Nigeria.

Further more the study will also seek to establish any possible relationship as otherwise between profitability of a company or increase in its earning per share and its merger and or acquisition scheme.

At this junction, it may be pertinent to acknowledge the view of some experts that many business fusion and acquisition had often resulted in disappointment, as the profit level of the business organization went down. Should this be, the organization wishing to diversify or expand its operation would be compelled to seek out any ailing firm with suitable production plant and technology as well as good distribution network.

 

 

 

 

 

 

 

 

 

 

 

 

  • Objectives Of Study

The study is a deliberate effort to evaluate merger and acquisition as a strategy of survival and growth. The objectives of the study include:

  1. To appraise the financial position of the banks before and after the mergers and acquisitions.
  2. To know whether these banks selected has grown and survived through mergers and acquisitions.
  • To find out whether the profitability of these banks has grown as a result of the merger and acquisition.

 

  • Statement Of Hypothesis

The hypotheses formulated for this study are:

  • Ho: Corporate firms have not grown and survived through mergers and acquisitions.

Hi:    Corporate firms have grown and survived                                through mergers and acquisitions.

  • Ho: The earning per share of the banks has not            improved since the mergers and

Hi:    The earning per share of the banks has improved since the mergers and acquisitions.

 

  • Scope and Limitation of Study

This study evaluates corporate growth and survival through mergers and acquisition with special reference to Access bank and First City Monument Bank. The study will not cover the entire banks that were merged and acquired, due to time constraint and finances. Time constraint poses a problem since it will be an uphill task to visit all the banks that were merged since they are dispersed all over the country. Finance; due to lack funds the researcher may not be able to visit all the branches of the banks selected for study. Thus, the materials required for the study may not be easily collected.  Hence the researcher will base her conclusion(s) on the findings from the two banks selected for the study.

 

 

 

  • Significance of Study

With the recent increase in the incidence of investigation and bankruptcy of corporate firms together with dwindling economic situation of the country, there is need for the examination of the effect of business merger and acquisition in the performance of Nigeria business organization. It is however believed that with the study of the companies that are involved with the strategy of merger and acquisition as a means of survival, one would be able to assess the profitability and viability of the strategy being widely adopted in the Nigeria business environment as a survival cum growth strategy.

  • Investors: This study will benefit the investor with regards to assessing the financial position of the firm.
  • Management: Results obtained will help management to assess the effect of merger and acquisition on the performance of the company.
  • Researcher: This study will serve as a secondary source of data for research purposes.

It is in the light of the foregoing that the subject of this study is considered very significant.

 

1.7   Definition of Terms

Merger: A merger is a process where two previously autonomous companies combine to form a larger company under the common control of a new company comprising of all or a substantial number of the shareholders of both companies. As a result of this arrangement a new company is thereby formed.

Acquisition: An acquisition may be defined as transactions or a series of transactions, where a person (individual, group of individuals, or company) acquires control over the assets of a company either directly or indirectly by obtaining control of the management of such a company.

Growth: This is the process of increasing or developing in size.

Survival: This is the state of continuing to live or to exist.

Corporate Firm: This means a business organization of people who work as a team towards achieving an objective.

Conglomerate: This is when two firms in completely different industries merge, such as a brewing company merging with a high technology company. For example, Nigerian Brewery (NBL) has diversified its businesses through mergers and acquisitions, allowing NBL to get into new areas.

Pre-merger: This is the period before the merger arrangement, where the individual companies have separate identities.

Post-merger: This period after merger arrangement has occurred and a new company has been formed.

 

1.8   A Brief History of Access Bank:

Access Bank Plc is a full service commercial bank with headquarters in Nigeria and operations cross Sub-Saharan Africa and the United Kingdom.  It was incorporated in February 1989 as a privately owned financial institution and commenced banking operations in May 1989.  It was listed on the Nigerian Stock Exchange in 1998. The Bank’s Over the Counter (OTC) Global Depository Receipts (GDRs) are traded on the London Stock Exchange.

In deploying products and services, Access Bank adheres to responsible business practices and readily commits resources to social investments in fulfillment of its corporate social responsibility convictions.  The Bank has more than 1,000,000 investors.  The Bank’s Shareholders’ fund is in excess of US$1.2 billion and its strategic intent is to rank among the top 3 Nigerian banks by 2012. Access bank is a full service commercial bank with a network of over 100 branches and service outlets. In 2005 it acquired Marina and Capital Bank (the former Commercial Bank- Credit Lyonnais Nigeria).

The Bank demonstrates exemplary performance in its financial and non-financial disclosures. Its strengths include a highly diverse Board membership; competent, dynamic and responsible management; strong economic value and good ethical practices and transparent processes.  The list of international organizations that are in partnership with Access Bank Plc includes the Netherlands Development Finance Company (FMO), the International Finance Corporation (IFC), Visa International, US EXIM and China EXIM Bank.  The understanding and commitment of the Bank’s employees, over 850,000 Shareholders, millions of customers and several partners across the world have been critical to Access Bank’s progress and success. The impact of business merger with Intercontinental Bank is multidimensional and have resulted in geometrical growth across key performances.

 

1.9   A Brief History of First City Monument Bank

First City Monument Bank (FCMB) is a full service banking group, headquartered in Lagos, Nigeria.

FCMB is the flagship company of the First City Group, one of Nigeria’s leading comprehensive financial services providers. From its early origins in investment banking as City Securities Limited in 1977, FCMB (established in 1982) has emerged as one of the leading financial services institutions in Nigeria, a top 10 bank with subsidiaries that are market leaders in their respective segments.

FCMB was incorporated as a private limited liability company on 20 April 1982 and granted a banking license on 11 August 1983. On 15 July 2004, the Bank changed its status from a private limited liability company to a public limited liability company and was listed on the Nigerian Stock Exchange by introduction on 21 December 2004. During the consolidation of 2005, the bank merged with Cooperative Development bank Limited, Nigerian -American Bank limited and eventually acquired Midas Bank limited.

The Bank completed the acquisition of Finbank Plc in February 2012. Following the acquisition, the FCMB Group now has 1.7 million customers, 330 branches and cash-centers spread across every state of the Federal Republic of Nigeria and a presence in the United Kingdom (through its FSA-authorized investment banking subsidiary, FCMB UK) and a representative office in the Republic of South Africa

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Cost value profit analysis for profit planning in manufacturing firm

Cost value profit analysis for profit planning in manufacturing firm ( A case study obika Industry Nigeria limited Nkpologwu Anambra state)

ABSTRACT


This is set out to determine the application of cost volume profit analysis in business decision making the constraints experienced as well as the assessment of service coverage.
In chapter one and two the decision makers on management is faced with a lot of problems but when these are addressed, the cost volume profit analysis are not adequately interpreted to management non availability of records and lack of proper knowledge of the users in a manufacturing firm. There is therefore need to embrace and identify the extent and nature of a accounting, services to the business segments in their decision makings especially on the areas of finance of the business.
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Lastly chapter five, managers do not play significant role in using accounting decisions. However manager of business needs more training to be able to serve effectively and account should relate well with the management especially during financial decisions to enable management carry up effective performance.

CHAPTER ONE

1.0 INTRODUCTION
1.1 OVERVIEW OF THE STUDY


Due to industrialization in recent years, manufacturing firms have been increasing. They are more complex technologically and compete among each other for survival. It can also be that high growth rate occurs among them due to some levels of efficiency in production. The complexity and competition had been enhanced by increasing technology, use of expertise, computerization and raw material acquisition. There are also government economic growths cost control to mention a few.
Among these control measures, cost control is significantly controlled by firm, since is managerial function which help to reduce cost in production and to again advantage over other first in the same industry. But some questions arise how can a firm be faced with control and management of cost decides on how many units to be employed? At what price will the products be disposed off?
Cost volume profit analysis is a management tool used hen the problems of CVP implications arise in the firm, the problem includes to make or buy decisions, product appraisal, add or drop decisions product planning and promotional mix, distribution channels and profit planning decisions.
Cost volume profit analysis is a valuable and reliable tool. If well applied, helps to alleviate the enumerated problems.
The next questions that arises is do manufacturing firms apply cost volume profit analysis? If yes, how many CVP charts and ratios are plotted (or graphed) and computed in order to mange and control costs while increasing profits and market shares? How are this information relieved from appraised charts and ratio in the light of the basic assumption? How do firms that acquired this information used them in decision making?

1.2 STATEMENT FO THE PROBLEM


Considering the naira and its purchasing power, the researcher founds out that manufacturing firms are faced with heavy cost involvement during the process of manufacturing. The incurred cost have the implications in his overall productions which call to mind the cost problem. How can this cost problem be alleviated?
The economy is not the same today as it has been in the past decade. The exchange rate of naira to foreign currencies and the price fixed for manufacturing goods and services greatly affect the profits to be made on the part of the manufacturers. If prices are not well fixed compared with the sale needed and cost incurred, it will pose a problem hence. 
In the past decade, manufacturing firms had been increasing their volume of production. But today because of inflationary trends which prompted increase in cost of production negatively affected the volume of output. As such firms had been forced out of business while the continuing ones find it difficult to produce or maintain their format volume of production.
The result is that the volume produced had reduced and reduce and this pose a volume problem that is capacity under utilization. The next issue: How can these three words cost; volume and profit be understood and inter mingled?

1.3 OBJECTIVE OF STUDY


The aims and objectives of this study is to find out the reason why some firms do not use cost volume profit analysis, in planning and control of cost, and also in decision making.
Again, where some firms use cost-volume profit analysis, the basic assumptions are not implemented. It is also the objective for the study to know why some firms who use cost volume profit analysis end up not combating cost implications problems.
In the objectives, also to analyze the basic assumptions of CVP analysis to know their effect on firms especially those of the manufacturing sector.
It is by highlighting these that a way of making recommendations to the problems will be predicted.

1.4 RESEARCH HYPOTHESIS


Hypothesis one:
H0: The application of CVP analysis graphs and ratios by manufacturers in the control and management of costs.
Hypothesis Two
H1: The application of CVP analysis graphs and ratios enhance profitability, productivity and efficiency decisions in manufacturing firms.
H0: The applications o f CVP graphs and ratios do not enhance profitability, productivity and efficiency decisions in manufacturing firms.
Hypothesis Three
H0: The application of CVP analysis is necessary in the effective control and management of costs.
H0: The application of CVP analysis is not necessary in the effective control and management of costs.

1.5 SIGNIFICANCE/SCOPE OF STUDY


Due to the inherent problems in Nigeria, the CVP analysis has been directly and indirectly affected. It is with this in mind the researcher looks into the underlined consideration of CVP analysis in the manufacturing firms with particular reference to Obika Industry Limited Nkpologwu. In order to have the various approaches of the CVP touched.

1.6 LIMITATIONS OF THE STUDY


It is due to finance that the researcher limits himself to the use of Obika Industry Ltd. In carrying out his project work, despite the numerous manufacturing firms all over the country. The distance between the researcher and the case company posed serious hitch to the smooth carrying out of this project.
The time frame allocation to the writing of this project was so infinitesimal and hence little time was allocated to writing this project.

1.7 DEFINITIONS OF TERMS


COST-VOLUME-PROFIT ANALYSIS (C.V.P): This is a systematic method of examining the relationship between changes in volumes (output) and changes in total sales revenue, expenses and net project. As the model of these relationships, it simplifies the real word conditions that a firm will face is it subject to a number of the understanding assumptions, limitations and a powerful tool for decision making.
COST VOLUME CHART (CVPC): A chart that helps in the enrichment of understanding of the inter-relationship of all factors affecting profit especially cost behaviour patterns over ranges of volume.
FIXED COST (FC): The cost that fixed in total amount over a period of production, but varies per unit of output with the level of production changes.
VARIABLE COST (VC): The cost that directly affects production by varying the level of production but constantly remain fixed per unit of output.
SEMI VARIABLE COST (SVC): The cost that have both fixed and variable cost features. It fluctuates as changes occur with relevant range but not in direct proportion to the changes.
CONTRIBUTION MARGIN (CM): It is the product profit of sales minus all variable costs.
BREAK-EVEN POINT (BEP): The point of activity where total cost are equal and the firm neither making profit nor loss.
MARGIN OF SAFETY (MOS): This is the excess of budgeted sales over the break even sales –volume
PROFIT/VOLUME RATIO (PVR): Is the relationship between contribution and sales value.
GROSS PROFIT RATIO (GPR): This is the commonest measure of profitability. The gross profit margin measures the efficiency with which the firm produces each unit. Its products by discounting all operating expenses.
TIME-SERIES ANALYSIS (TSA): This approach does an evaluation of the firms operations over a period, the purpose being to evaluate the firms performance over this specific internal of time.
PRODUCTION DEPARTMENT (PD): A unit in which operations are performed on the part or product and whose costs are not further allocated.
NET PROFIT RATIO (NPR): The net profit margin measures the percentage of sales remaining after expenses including taxes has been deducted.

REFERENCES


COPERALAND, R AND SULLINAN, N.G (1978) COST Accounting: Accumulation Analysis and control. 
2nd edition. Texas west publishing co. Inc.
BENIN A.E (1995), use of cost data in business decisions, JOEBIZIE publishers. Enugu.
EZEJULUO A.C AND OGWO O.E (1990), Basic principles in managing research project. Publisher and city of publication.

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