Effect of merger and acquisition strategy on competitive advantage of ICEA and lion group, Kenya

Abstract

Mergers and acquisitions have become a common phenomenon in recent times. Companies have been actively involved in mergers and acquisitions locally as well as internationally. The increased competition in the global market has prompted companies to go for mergers and acquisition as an important strategic choice. Mergers and acquisitions are the strategic growth devices in the hands of many companies not only to stay in the competition but also to extend their margins, market share and dominance globally. It plays an important role in external corporate expansion, acting as a strategy for corporate restructuring and control. It is a different activity from internal expansion decisions, such as those determined by investment appraisal techniques. Mergers and acquisitions can facilitate fast growth for firms and is also a mechanism for capital market discipline, which improves management efficiency and maximizes profits. The scale and the pace at which merger and acquisition activities are coming up are remarkable. In Kenya, mergers and acquisitions have slowed down in the first four months of 2015 compared to a similar period in 2014, despite this, Kenya has kept its position as the leading merger hotspot in East and Central Africa. The term competitive advantage refers to the ability gained through attributes and resources to perform at a higher level than others in the same industry or market. The study sought to establish the effect of merger and acquisition strategy on competitive advantage of ICEA and LION Group insurance company. It reviewed the market based view theory, resource based view theory, capability based theory and relational view of strategy for its literature in relation to mergers and acquisition strategy and competitive advantage. The research took the casual research design framework and data was collected through both primary and secondary data collection methods. The company achieved competitive advantage from the mergers and acquisition strategy through economies of scale which was achieved by selling more of the same product, economies of scope resulting from resources sharing, better control of costs and thereby improve profit margin, increased entry barriers to potential competitors. The firm gained access to an increased human capital resource, increased in quality of services offered to customers and improve the predictability of demand for its output through forward vertical integration. The study found that mergers have a statistically significant effect on fundamental value of the merged or acquired entity hence competitive advantage. Overall, merger and acquisition strategy and competitive advantage coefficients are significant indicating firms performing better after the resulting merger or acquisition. The study concluded that based on the data presented and the summary of the findings the merger and acquisition strategy had a positive impact on the company’s competitive advantage. This is because the merger and acquisition strategy brought about higher capital which is an important factor for a firm’s positive performance. This implies that indeed the mergers and acquisition strategy has a positive effect on a company’s competitive advantage. The implications from the study was that as a result of the merger and acquisition strategy, the company was able to achieve competitive advantage through attaining a globalized outlook, improved efficiency, improved quality of service, better deployment of idle resources, acquisition of synergies and economies of scale. The study therefore recommends more insurance companies in Kenya and beyond to seek to attain positive competitive advantage through consolidating their firms through the merger and acquisition strategy as it has a positive impact on the success of attaining the set out corporate objectives.