MERGER AND ACQUISITION AS A GROWTH STRATEGY IN BUSINESS ORGANIZATION

ABSTRACT

 This research takes a look at the adoption of merger and acquisition as a growth strategy in business organization. There is no gainsaying the fact that many companies have been having financial problems. The reason is not far fetched. This is as a result of mismanagement and economic meltdown. In order to save such unhealthy situation in such companies from going into liquidation, merger and acquisition can be used to revive such companies if properly adopted. Even though merger and acquisition are used interchangeably, they have some differences. A merger occurs when two or more separately existing companies come together to form a new single company. Acquisition or takeover on the other hand is the purchase of controlling power or interest in one company by another company, such that the acquired company becomes a subsidiary or division of the acquirer. This research work highlighted the benefits involved in the adoption of merger and acquisition as a growth strategy in business organization. The population of the study consists of all the Nigerian companies that have adopted merger and acquisition at one time or the other. Four (4) organizations were selected as sample for the study using convenient and judgmental techniques of sample selection. Data were collected from primary and secondary sources and subsequently analyzed using chi-square statistics. The finding of the study shows that merger and acquisition is an effective and efficient growth strategy in business organization. However, the study concluded that organizations can achieve the desired growth rate by the adoption of merger and acquisition. Finally, the study recommends that organizations that are not doing well should adopt mergers and acquisitions as the strategy will help the management to overcome developmental and environmental challenges in business especially in this era of economic crises.

CHAPTER ONE

1.1       BACKGROUND OF THE STUDY

The framework of this study falls within the business policy and strategic management theory. Business policy is the active process of guiding the course of a firm towards its obligations, while strategic management is the increasing responsibility of managers to respond to changes in the business environment through:

Strategic planning

Real time response to issue by management

Management strategic change

The focus of business policy and strategic management is how to formulate strategies to respond to changes. Mergers and acquisitions are aspects of strategy formulation. Business combinations which may take forms of mergers, acquisitions or otherwise takeover are important features of corporate planning and structural changes. They have played an important role in the external growth of a number of leading companies the world over.

In Nigeria, mergers and acquisitions were not so common until recently due to the economic down turn. The current economic climate in the country which is characterized by shortage of foreign exchange for the importation of goods, low exchange rate of the naira the credit policy and globalization have increased business risks and this poses serious threats to their long term survival. As a result, previously autonomous business organization has recently been taking advantage of mergers and acquisitions, particularly in the banking and conglomerate sector of the economy to form larger concerns needed to reduce their risks and guarantee better chances of survival

According to Belverd (1999), Merger is the aspect of corporate strategy, corporate finance and management dealing with the combining of different companies that can aid, finance or help a growing company in a given industry to grow rapidly without having to create another business entity. One or more companies may merge with an existing company through consolidation. The new single company will inherit the assets and liabilities of the separately existing companies which are then wound up. Merger is consummated by exchange of shares among the merging company’s shareholders (Nwude, 2003).

Acquisition or takeover is the purchase of controlling interest in one company by another company such that the acquired company becomes a subsidiary or division of the acquirer (Nwude, 2003). A company is said to acquire a controlling interest in another company if the acquiring company (the acquirer) purchased and holds not less than 51% of the target company’s (the acquiree) issued and fully paid-up ordinary share capital. At this level of acquisition the acquirer company becomes the holding company while the acquiree company becomes the subsidiary of the acquirer (Nwude ,2003).

The adoption of merger and acquisition offers many benefits to the companies which includes management expertise, risk diversification, stock exchange quotation, increase market share, desire for growth, technological drive, profit. Another reason for merger and acquisition is the belief that synergies exist, allowing the companies to work more efficiently together than either would separately. Such synergies may result from the firms combined ability to exploit economies of scale, share managerial expertise and raise larger capital.