Influence of mergers and acquisitions on financial performance of firms listed in Nairobi securities exchange

Abstract

The objective of this study was to investigate the influence of Mergers and Acquisitions on financial performance of firms listed in the NSE. The study was guided by three specific objectives; to compare financial performance of NSE listed companies during Mergers and Acquisitions; to compare financial performance, synergy effects, risk diversification and market share of companies listed in the NSE during Mergers and Acquisitions; and to assess managerial perspectives regarding determinants of Mergers and Acquisitions of NSE listed companies. The study adopted the synergy theory and behavioural theories to guide the study. The study adopted positivist approach to research and utilised a descriptive research design. The study targets managers and heads of finance, risk and compliance, credit, internal audit, and operations departments of the 19 sampled firms. The target population of the study was 190 respondents. The established sample size was 129 respondents but the actual sample size was 102 participants. The study incorporated both primary and secondary data. A questionnaire was used to collect the primary data and secondary data was collected from financial statements of the sampled firms. The first stage of analysis was conducted using descriptive analysis of primary data which showed that market share had a higher overall mean score, followed by risks diversification, and synergy. The secondary analysis findings show a positive and statistically significant relationships between the synergy, risk diversification, market share and financial performance. The findings show that market share had the greatest effect on financial performance of the firms. The findings also show that there was a statistically significant difference between financial performance of sectors listed in the NSE pre-merger and post-merger. This difference was experienced in terms of their market share post-merger. This finding suggests that different sectors experienced changes in their financial performance before and after undergoing M&As. The study concludes that financial performance of firms increased in the post-merger era; that market share determined financial performance of NSE firms post-merger; and that market share was the greatest motivation for firms’ to merge and acquire. The study recommends that companies with little market share should engage in M&As to improve their performance and maximize the shareholders wealth; that companies on different lines of production and different industries should engage in M&As to take diversify their risks; and that companies should therefor adopt this as part of their strategy to improve performance. The findings revealed that there was a statistically significance difference in the market share of firms post-merger. The study therefore suggests for further study to determine the difference of each sector in terms of market share after merger and acquisitions.