Impact of Mergers, Acquisitions and Internal Growth on Organisations

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In this report I will be examining Mergers and Acquisitions, Internal Growth and the impact they have on organisations. The impact of mergers and acquisitions on organizations has seen a change in the way mergers were conducted in prior years before legislators put a stop on some companies that were merging due to change in the economy, technology and for a change in management of the firm. The reasons organsations are acquiring other companies are for dubious or sensible reasons that can be beneficial for share holders, but not only that, there is strong belief among corporate management that an acquisition or a merger is going to yield a great amount of revenue and be better competitors against other firms. Organic growth is a well-known concept in the industry. As margins are squeezed and spending is more carefully regulated, organic growth has become the most viable option for those who simply cannot afford a costly expansionary strategy. Many industry professionals understand organic growth to be, that which comes from deepening relationships with current customers; others extend that definition to include acquisition of new customers from within an existing branch footprint. In either case, organic growth is generated without expanding an institution’s delivery network.

I intend to investigate these strategies by using Internet research, academic resources, journals, financial newspapers and textbooks. I will also be looking at the effect of different strategic options used to find out those that have been successful and those that have not. The fulcrum of this treatise is the Nigerian banking industry and the outcome of the consolidation exercise. Finally I will be comparing and contrasting both Merger and Acquisitions and Internal growth strategy among each other in order to find out their advantages and disadvantages, and the most successful one to implement in an organization.

Why Mergers/Acquisitions and or Organic (Internal) Growth Need in Nigerian Banking sector?

As part of its corporate strategy, every firm strives to cope with its environment by setting goals, defining objectives, formulation of strategies, structural design and redesigning, real time response to management issues and management of change. This assertion is in consonance with the view of Ansoff (1984), Schendel and Hatten (1972) . For banking firms in Nigeria the following observations are the fallout of the environmental challenge which preceded the banking scene up to 2004 as observed by Soludo (2007). The report averred that banks, particularly those classified as unsound, have been identified to include: persistent illiquidity, poor assets quality and unprofitable operations and stated the major problems of many Nigerian banks as follows: “a) Weak corporate governance, evidenced by high turnover in the Board and management staff, inaccurate reporting and non-compliance with regulatory requirements, falling ethics and de-marketing of other banks in the industry; b) Late or non-publication of annual accounts that obviates the impact of market discipline in ensuring banking soundness; c) Gross insider abuses, resulting in huge non-performing insider related credits; d) Insolvency, as evidenced by negative capital adequacy ratios and shareholders’ funds that had been completely eroded by operating losses; e) Weak capital base, even for those banks that have met the minimum capital requirement, which currently stands at N1.0 billion or US$ 7.53 million for existing banks and N2.0 billion or US$ 5.06 million for new banks, and compared with the RM 2.0 billion or US$ 526.4 million in Malaysia. f) Over-dependency on public sector deposits, and neglect of small and medium class savers.”

Nigerian banks conceived and implemented different strategies to achieve the stipulated minimum capital base of N25 billion during the banking sector consolidation of 2004 and 2005, including Mergers and Acquisitions and internal (Organic) growth....
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