Effect of Mergers and Acquisitions on Financial Performance of Small and Medium Enterprises in Kenya

Abstract

Every business aims at making profits and all efforts are directed towards profit. It is therefore important for firms to come up with initiatives such as mergers and acquisitions that can increase profit and come up with metrics to measure financial performance. Firms adopt M&As when faced with financial constraints. Sometimes government regulatory agencies compel firms to undertake mergers and acquisitions during periods of financial constraints. Nevertheless, mergers and acquisitions can either result in improved financial performance or poor performance. Kenya has experienced mergers and acquisitions involving SMEs. The objective of this study was to establish the effect of mergers and acquisitions on financial performance of small and medium enterprises in Kenya. This study adopted descriptive survey research design and the target population comprised of 9 small and medium enterprises in Kenya. The study collected secondary data on return on assets and return on investment for the period 2008 to 2017. The study used t-Test to analyze and examine the association between mergers and acquisitions and performance of Kenyan SMEs. The study established that financial performance of SMEs was influenced by mergers and acquisitions. Mergers and acquisitions led to the rise in the return on assets and return on equity. The study recommended that the process of merger and acquisition should be led by clear policy guidelines agreed upon by all stakeholders, SMEs intending to participate in mergers and acquisitions should invests in research aimed at establishing the best opportunities and firms for mergers and acquisitions, government of Kenya through the ministry of trade and industrialization should come up with a national policy guideline that govern merger and acquisition of SMEs and further research on the Key success factor for mergers and acquisition involving SMEs.