Effect of Mergers and Acquisitions Announcement on the Value (Market Share Price) of Listed Commercial Banks in Kenya

Abstract

Firms enter merger and acquisitions with an intention to gain various synergies, improve their values and financial performance. However, the results of M&A have been varied in Kenya making players in the banking industry to wonder whether to support or discourage mergers and acquisitions. Literature shows that Kenya's M&A activity has prompted both successes and failures which necessitated this study to evaluate the effect of mergers and acquisitions on the market value of banking firms in Kenya. The objective of the examination was to scrutinize the effect of mergers and acquisitions on the market value of commercial banks listed in NSE. The researcher applied secondary data and event study research design in which the population was all the licensed banks as at 31st December, 2020. The scholar utilized the purposive sampling to select the 11 banks which have either acquired or merged with other banks. The research sample was thus all mergers and acquisitions between 1999 to 2020 involving commercial banks listed at NSE. There were 11 mergers and acquisitions in that study period but the researcher dropped one due to incomplete historical share data. The researcher employed SPSS version 26 and excel for analysis of the data collected. The scholar established that all the announcement of M&A positively affects the value of commercial banks in Kenya listed at the NSE. In most instances, the announcements of M&A lead to rise in the share prices whereas in certain times it leads to no significant change in share prices. This is demonstrated by the t-test results whereby the rise in share prices was significant after M & A involving NCBA, Standard Chartered, Coop, DTB, and Habib Bank because they all had p-values of 0.000, which is less than the 0.05 significant level. Then, the announcement of the merger of KCB and Savings and Loan (K) Limited in 2010 had no significant change in the market share price of KCB since its p-value of 0.666 was higher than the 0.05 significant level. Also, the announcement of the acquisition of NBK by KCB led to no significant change in the market share price of KCB because the p-value was 0.139, which is greater than the 0.05 significant level. Additionally, the change in prices before and after the merger of Barclays Bank indicates a p-value of 0.155, which is higher than 0.05, denoting that the change in price was insignificant. Besides, the change in share prices of I & M following the acquisition of Giro bank by I & M had a p-value of 0.087, indicating that there was an insignificant change in value. In a nutshell, majority of the firms under study realized upsurges in their values following the announcement with most of them recording abnormal returns shortly after the M&A. However, the M &A announcement led to insignificant effect on some few banks under study. The study resolved that the announcement of M&A significantly and positively influenced the share returns of commercial banks listed at NSE. Therefore, they were able to maximize wealth for the stockholders in the short run. The few banks that had insignificant changes in their values depict that companies need some time after the mergers and acquisitions to profit from their undertakings. Also, the M & A immensely impacted the value of banks that had low performance before the announcement compared to those which performed better prior the M&A. Hence, this emphasizes the verdict that the M&A improve the value of commercial banks but the effect may only be limited by time. Therefore, it is believed that these firms that registered insignificant changes in values after the consolidations can only give more time to reap from them.