Effect of Mergers and Acquisitions on the Financial Performance of the Companies Listed at the Nairobi Stock Exchange

Abstract

A merger can be looked at as the process in which two or more business operations are combined into one business entity with the same management and ownership. From a legal stance, mergers can be looked at as the consolidation of two or more entities into one entity. An acquisition on the other hand, involves purchase of a controlling interest by a company in the share capital of a second existing company. Various motivations for mergers include synergy, diversification, acquiring market share, reduction of cost as well as gaining access to resources. Mergers and acquisitions are a strategic tool in the modern corporate world and the trend has been witnessed in the Nairobi Securities Exchange. The study set out to determine the effect of mergers and acquisitions on the financial performance of the companies listed at the Nairobi Securities Exchange. The population of the study was the mergers and acquisitions that took place between the years 2007 and 2013 and a census approach was adopted. Three year pre-mergers and acquisitions and post-mergers and acquisitions data was collected from secondary sources and compared to determine whether there was a significant change in the financial performance after mergers and acquisitions by the use of a paired t test at 5% significance level. From the findings of the study, mergers and acquisitions had a significant effect on the financial performance.