The Impact of Acquisitions on Financial Performance of Firms in the Telecommunication Industry in Kenya

Abstract

There is Increasing competition arising from the changing global market which has resulted in firms finding it difficult to remain competitive. Acquisitions seem to be a very popular thing to the corporates in the current world. Empirically, studies have found conflicting results of financial performance before and after acquisitions. In view of these contradictory results, the question of the determinants of finance decisions in these acquisitions remains pertinent. This study aimed to close this gap and give a clear picture on the impact of takeovers on the performance of the firms that acquire other firms. This research adopted a descriptive research design in order to determine the impacts of YU mobile acquisition on Safaricom Ltd and Airtel financial performance. The target population under study consisted of Safaricom Ltd and Airtel Companies in Kenya. The target population for this study comprised of finance departments of Safaricom and Airtel Kenya. Regression model was used to determine the relationship between the variables. Data was analyzed by Statistical Package for Social Science (SPSS Version 20.0) program. Quick ratio, Current ratio, Total asset ratio and Debt/Equity ratio have a significant relationship with the Return on Assets. The study also concludes that acquisition of firms can also lead to an increase in liability of the firm that might exceed the net worth of the acquiring firm and hence leads to a positive increase of Total debt ratio that might affect the financial performance of the acquiring firm. The study finally recommends that during acquisition the acquiring firm should ensure that the total liabilities should not exceed the net worth of the business by a bigger margin to mitigate on financial performance of an acquiring firm.