Profitability Analysis of Pre and Post Mergers and Acquisitions for Commercial Banks in Kenya

Abstract

Most studies on the profitability analysis of mergers and acquisitions for commercial banks however seem focused on developed markets. Though in recent times, substantial amount of research is also emerging in African markets. From the literature and empirical evidence review it is still not clear on the direction of the relationship between profitability and mergers and acquisitions. This study used three variables to examine the relationship between profitability and Mergers and Acquisitions. The study used secondary data obtained from Kenya published audited annual reports of accounts for the respective banks. Financial data from statement of financial position, statement of comprehensive income and statement of cashflows of the respective companies before and after mergers was used to calculate and analyze profitability for the merged companies for the period under study. Analyses of the ROA on the banks that merged or were acquired communicate mixed signals. ROA of the new institution improved after the acquisition or the merger. However, ROA of the new institution at times dropped slightly compared to the average of the two institutions before the coming together transaction was concluded.From the findings, the profitability of the new institution formed on the merger/ acquisition registered a higher profitability as depicted by an increase in the ROA and ROE on the merger/acquisition. Merging/ acquisition improved the profitability of the new institution compared to the two separate institutions separately. In some cases however, the improvement was not realized immediately after the merger/acquisition. The increase in profitability was more pronounced in the second and the third year than it was in the year of the merger