Effects of mergers and acquisitions on financial performance of oil companies in Kenya
A Merger refers to the combination of two or more firms, in which the resulting firm maintains the identity of one of the firms, usually the larger. An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. The study set out to find the effects of mergers and acquisition on financial performance of oil industry in Kenya. This study took on a causal research design. Causal research design is consistent with the study’s objective which is to determine the effect of mergers and acquisition on financial performance of oil industry in Kenya which can be measured through long-run profitability, leverage and liquidity. Gay and Airasian (2003) note that causal research designs are used to determine the causal relationship between one variable and another .Population is a well defined set of people services, elements, events, group of things or household that are being investigated. In this study the target population was the oil companies in Kenya with keen interest on those that have gone through mergers and acquisition. The process of data collection involved self administered drop and pick questionnaires distributed to management and employees of the oil industries involved. The use of audited accounts enhanced the data received from respondents .Qualitative analysis was used to analyze the views of respondents on mergers and acquisition. Also Chi-Square test was used to establish the relationship between pre and post merger/acquisition and linear regression model enhanced the analyses of the effects of merger and acquisition on financial performance. According to the findings, majority of these companies were established through mergers rather than acquisition. Also according to the model, mergers and acquisition, respondent Opinion about M & A, and financial performance were positively correlated with financial performance after merger. A unit increase in mergers and acquisition would lead to increase in application of financial performance by factor of 0.166.This was a clear indication of the firms performing better financially after the resulting merger and/or acquisition. Also the findings concludes that creation of economies of scale, need to gain a higher bargaining power, and business expansions are the main reasons as to why companies conduct M & A. The study also concludes that despite the process of M & A being smooth and the management orientation remaining the same, still uncertainty and confusion among the employees persist The study further conclude that merger and acquisition would lead to a high positive performance (p = 0.02).. Based on the findings the study recommends that there is need for companies to merge to enhance creation of economies of scale, a higher bargaining power, and business expansions.