The Effect of Mergers and Acquisition on Financial Performance of Insurance Companies in Kenya

Abstract

Mergers and acquisitions (M&A) world over in the past few years have increasingly been experienced. They occur due to changes in the operating environment aimed at realizing synergies that will boost future cash flows thereby enhancing firm’s value. Just like other companies operating in Kenyan; insurance companies are faced with stiffer competition both in price competition as well as in brand leadership, decreasing brand loyalty and increased value-consciousness among consumers. All these emerging threats have prompted many insurance companies to adopt alternative survival strategies such as Mergers and Acquisitions in an attempt to consolidate their resources by minimizing costs and capitalizing on their increased bargaining power. This study was anchored on the shareholder wealth Maximization theory and the resource based-view theory. The Research Objective was to establish the effects of mergers and acquisitions on the financial performance of insurance firms in Kenya. The research adopted an analytical research design. The target population comprised those insurance companies in Kenya that have been engaged in the Mergers and acquisitions over the past fifteen years. This was made up of 24 insurance companies that merged into 10 insurance companies. Data sources involved the use of secondary data using audited financial statements covering the 6-year study period; three for pre-merger and three for post merger. Data analysis was undertaken using descriptive statistics, trend analysis, chi-square tests and regression analysis. The findings indicate that there was a statistically significant the effect of pre and post-merger and acquisition performances of insurance companies. This is because the significance figure was less than 0.05 (p≤0.5). Using regression model, the study established that adoption of mergers and acquisitions enhances the financial Performance of insurance firms in Kenya .The independent variables that were studied explain a substantial 91% of the increase in financial performance of as represented by adjusted R2 (0.901).