Volume: 5 | Issue: 7 | July 2019 || SJIF Impact Factor: 5.

148 ISSN (Online): 2455-3662

EPRA International Journal of

Multidisciplinary Research (IJMR) Peer Reviewed Journal

MERGERS AND ACQUISITION – A TOOL FOR

SURVIVAL AND GROWTH IN NIGERIAN BANKING
SECTOR: A STUDY OF SELECTED BANKS

Prof. S.C. Okaro Ashara Obiageli .l.

Department of Accountancy, Department of Accountancy,
Nnamdi Azikiwe University Awka, Nnamdi Azikiwe University Awka,
Anambra State, Anambra State,
Nigeria Nigeria

Ugwu Hope .l.

Department of Accountancy,
Nnamdi Azikiwe University Awka,
Anambra State,
Nigeria

ABSTRACT
This research work was carried out with main purpose of finding out whether mergers and acquisitions are veritable tools for
survival and growth of Nigerian banking sector using Access bank and Intercontinental bank merger as a case point. Survey
research design was adopted in carrying out this research work and the primary data for this study were obtained through
questionnaire and observation while the secondary data were obtained from published journals, textbooks, paper
presentations, newspapers, annual reports, central bank of Nigeria statistical bulletin and internet materials. A sample of 13
branches of Access bank in Anambra State out of 366 was selected on purposive basis for ease of access and 65 employees out
of about 325 employees of the 13 branches were randomly selected and questionnaires administered accordingly. The
returned questionnaires were tabulated and analyzed using simple percentage while t-test was used to test the formulated
hypotheses. The study revealed that the merger between Access bank and Intercontinental bank was successfully completed
but Access bank profitability, liquidity and capital adequacy ratios dropped in the post consolidation period. Thus
Intercontinental bank was rescued through merger and acquisition but the impact was not much felt by the current Access
bank group. The study recommends that mergers and acquisitions should not be done out of desperation and should not be
seen as the only way out to reinstating ailing banks. It further recommends that monitoring authorities should institute
stringent control measures and improve on their supervisory capacity in order to ensure stability in banking sector rather than
resorting to merger and acquisition to correct wrongs.

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INTRODUCTION survival and growth as claimed by its

Banks as part of the Nigerian financial protagonists?” This study will therefore, try to
system channel scarce resources from surplus provide answer to this question in the particular
economic units to deficit units and they exert a context of the Nigerian Banking industry, using
lot of influence on the pattern and trend of the Access bank/Intercontinental bank merger as
economic development through their lending and a case in point.
deposit mobilization activities (Nzotta 2004). OBJECTIVE OF THE STUDY
Thus banks are the cornerstones and 1. To ascertain if merger and
indispensable element of the economy of a acquisition have significant effect on
country. ." Consequently, it is submitted that the bank liquidity
economic well being of a nation is a function of 2. To ascertain if merger and
advancement and development of her banking acquisition significantly increases
industry (Obadan, 1997). These roles can be bank profitability
performed positively only if it is functioning 3. To determine if merger and
efficiently. acquisition have a positive and
Similarly, a strong and virile economy significant effect on the capital
depends to a very large extent on a strong, stable adequacy of banks.
and reliable financial system including the HYPOTHESES OF THE STUDY
banking sector. This explains the frequency with 1. Ho: Merger and acquisitions do not
which the Nigerian banking sector has witnessed have significant effect on bank
repeated reforms which aimed at fine-tuning it to liquidity
meet the challenges for economic stability and 2. Ho: Merger and acquisition do not
developmental goals which are not only limited increase significantly bank
to domestic savings mobilization and financial profitability
intermediation, but also the elimination of 3. Ho: Merger and acquisition do not
inefficiency to enhance financial efficiency. have positive and significant effect
In Nigeria, the reform process of the on the capital adequacy of bank
banking sector is part and parcel of the SCOPE AND LIMITATIONS OF
government strategic agenda aimed at THE STUDY
repositioning and integrating the Nigerian The quality of any study involves a wide
banking sector into the African regional and coverage of activities in the gathering of data.
global financial system. Merger and acquisition have become the most
Over the years, commercial banks have prominent process in the corporate world.
been witnessing a lot of financial crises which Companies engage in mergers and acquisitions
result in bank distress. In order to curb this, the for the following reasons: synergy, monopoly,
Central Bank of Nigeria (CBN) introduced bank competition, survival, growth, Economies of
consolidation (merger/acquisition) programme scale etc.
and mandated banks to comply before 31 st Mergers and acquisitions can co-exist
December, 2005. This 2005 consolidation between financial institutions, non-financial
programme sent some of these banks on the institutions, financial/non-financial institution
move while those that failed to comply with the among others. Almost all Nigerian banks have
mandate found themselves on the other side of been engaged in mergers and acquisitions
the coin (failed/liquidated). Hence, merger and between 2005 to 2011 for one reason or the other.
acquisition may be considered as an option for To carry out a research on all the banks
survival and growth. that have been involved in mergers and
Academic researchers in both developed acquisitions since 2005 and issues relating to
and developing countries have posted mixed them, a lot of time, finance, and other variable
results on the benefits or otherwise of mergers are required. However, due to financial, time and
and acquisitions as veritable tools for survival other constraints, the researcher limits the study
and growth. So the question remains “are to mergers and acquisitions as tools for survival
mergers and acquisitions veritable tools for

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and growth in Nigerian banking sector with In the same vein, Gaughan (2007) defines
reference to the recent merger that took place merger as a combination of two or more
between Access bank Plc and Intercontinental corporations in which only one corporation
Bank Plc. survives.
REVIEW OF RELATED On the other hand, B. Coyle, 2000 defines
LITERATURE it as the coming together of two companies
MERGER DEFINED roughly of equal size, pooling their resources into
The terms merger, acquisition and a single business. The stockholders or owners of
consolidation are often used interchangeably. both pre-merger companies have a share in the
However, there are some differences. A merger is ownership of the merged business and top
the combination of two or more organizations management of both companies continues to hold
into one larger organization. Such actions are senior management positions after the merger.
commonly voluntary and often result in a new A merger according to Investment &
organizational name (often combining the names Securities Act, 2007 is the amalgamation of the
of the original organizations) (Jimmy, 2008; undertakings or any part of the undertakings or
Alao, 2010). It can also be defined as the fusing interest of two or more companies or the
together to submerge than separate identifies into undertakings or any part of the undertakings or
a new company formed to acquire the assets and interest of one or more companies and one or
assume the liabilities of the liquidated company. more bodies corporate. It entails the transfer of
A merger is viewed as situation where two or properties and liabilities of one or more
more companies combine together to form a companies to another. The transfer is however
larger business organization (Chief Oye limited to those rights that can be transferred, and
Akinsulire 2006). excludes personal contracts such as employment
According to Pandey (2008), a merger is contracts, which has to be specifically provided
said to occur when two or more companies for.
combine into one company. One or more In the same vein, Gaughan (2007) defines
companies may merge with an existing company merger as a combination of two or more
or they may merge to form a new company. It is corporations in which only one corporation
a situation where there is a complete survives. He further stated that the acquiring
amalgamation of the assets, and liabilities as well company assumes the assets and liabilities of the
as shareholders interest and business of the merged firm.
merging companies. ACQUISITION DEFINED
A merger, according to Gbede Omotayo Acquisition on the other hand, usually
(2005) is a form of business combination refers to a purchase of a smaller firm by a larger
whereby two or more companies join together one. Chief Oye Akinsulire 2006 defines
either with one being voluntarily liquidated by acquisition as where a party gains control over a
having interest taken over by the other and company by acquired to control the interest by
enlarge surviving of the company. It was defined voting share capital. This is also known as take
by the companies and Allied matter Decree 1990 over. It is a fundamental characteristic of merger
as any amalgamation of the undertaking or any (either through absorption or consolidation).
part of the undertaking or interest of two or more Morgan, 1997 defines it as taking over the
companies and one or more bodies corporate. ownership of another company with a
Also, Hitti, Ireland, and Hoskisson, (1999) combination of the company‟s operation and with
defined merger as a transaction in which two its own operations.
firms agree to integrate their operations on a Jimmy, 2008; Alao, 2010 opined that an
relatively coequal basis because they have acquisition, is the purchase of one organization
resources and capabilities that together may by another. Such actions can be hostile or
create a stronger competitive advantage. Nancy friendly and the acquirer maintains control over
Hubbard (2001) on the other hand, defined the acquired firm. Sudarsanam (2003) on the
merger as a situation which involve similar-sized other hand, stated that acquisition resembles
entities where both companies´ share are more of an arm‟s length transaction with one firm
exchanged for shares in a new corporation. purchasing the assets of the other and the

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shareholders of the acquired firm ceasing to be Acquisitions are: IBTC-Chartered Bank merger
owners of the new firm. It is the takeover or with Stanbic Bank Nigeria Limited, Access
purchase of a small firm by a big firm; which are Bank‟s merger with Capital Bank and Marina
both pursuing similar motives (Gaughan, 1999; International Bank, and Platinum Bank Limited
Amedu, 2004; Bello, 2004; Katty, 2005). merger with Habib Nigeria Bank Limited in
Acquisition takes place where a company Nigeria (Adesida, 2008; CBN, 2005: 45;
takes over the controlling shareholding interest of Ekundayo, 2008); and JP Morgan Chase‟s
another company. Usually, at the end of the acquisition of Bank One (Brealey, et al., 2006:
process, there exist two separate entities or 871).
companies. The target company becomes either a Vertical merger is a merger in which one
division or a subsidiary of the acquiring company firm supplies its products to the other. It results in
(Pandey, 1999:885). Also, Hitti, Ireland, and the consolidation of firms that have actual or
Hoskisson, (1999)defined acquisition as a potential buyer-seller relationships (Coyle, 2000;
transaction in which one firm buys controlling or Fitzroy, et al., 1998; Gaughan, 2007). This is the
100 per cent interest in another firm with the combination of two firms which are in the same
intent of more effectively using a core industry but at different stages in the process of
competence by making the acquired firm a producing and selling of products e.g. if
subsidiary business within its portfolio. accompany were to take over a supplier of raw
In this regard, the term “acquisition” can materials-backward vertical integration.
be interchanged with “takeover”. A company Conglomerate Merger occurs when
may also be acquired by purchasing either the unrelated enterprises combine or firms which
entire issued capital of a company or its business compete in different product markets, and which
and assets (Boardman, N & de Carle, R, 2007). are situated at different production stages of the
NATURE AND SCOPE OF same or similar products combine, to enter into
MERGERS AND ACQUISITIONS different activity fields in the shortest possible
Literatures on mergers and acquisitions, time span and reduce financial risks by portfolio
consistently discussed four different types of diversification (Brealey, et al., 2006: 871;
mergers. These are horizontal, vertical, Cartwright and Cooper 1992; Gaughan, 2007;
conglomerate and concentric mergers (Okonkwo, Sharma, 2004 Okonkwo, 2004: 4). This is a term
2004; Gaughan, 2007). used to describe merger between companies, in
Horizontal Merger is the merger of two or unrelated lines of business.
more companies operating in the same field and Concentric mergers and acquisitions
in the same stages of process of attaining the involve firms which have different business
same commodity or service (Gaughan, 2007: 13; operation patterns, though divergent, but may be
Brealey, et al., 2006: 871; Okonkwo, 2004: 3). highly related in production and distribution
Horizontal integration is where a firm takes over technologies. The acquired company represents
or merges with a company in the same industry an extension of the product lines, market
and at the same level in that industry, this is participation, or technologies of the acquiring
known as horizontal integration e.g. a merger firm. (Cartwright and Cooper 1992; Jimmy,
with a direct competitor. In other words, a 2008; Alao, 2010; Jimmy, 2008; Alao, 2010;
horizontal merger is the combination of firms that Sharma, 2004).
are direct rivals selling substitutable products REASONS FOR MERGERS AND
within overlapping geographical markets. The ACQUISITIONS
purpose of this type of merger is to eliminate a The question why mergers and
competitor company, to increase market share, acquisitions occur has multiple answers.
buy up surplus capacity or obtain a more The often discussed reasons are synergy,
profitable firm in order to gain a competitive agency costs due to self-serving acquirer
advantage. Besides such benefits, this type of managers, discipline of target management and
mergers has the drawbacks of restricting new managerial timing of high market valuation
entrants into the market, thus harming outsiders (Angwin, 2001; Rhodes-Kropf and Viswanathan,
due to diminishing competition (Gaughan, 2007). 2004; Shleifer and Vishny, 2003; Ayadi and
Typical examples of horizontal Mergers and Pujals, 2005; Higgins, 2009).

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Alao (2010) opines that mergers and to: buy up a company having competent
acquisitions represents the most widely used management; improve earnings per share, inject
corporate strategy to penetrate into new markets fresh ideas for be access to the financial market,
and new geographic regions, gain management eliminate duplicate and competing facilities,
expertise and knowledge or allocate capital. secure scarce raw materials, diversify into other
Mergers also help in the diversifications products or markets or to complete a product
of products which help to reduce risk as well range, greater asset backing; and enhance
(Pilloff and Santomero, 1996). According to economy of scale and corporate growth. The
Pilloff and Santomero (1997), there is little synergistic effect of mergers and acquisitions
empirical evidence of mergers achieving growth includes economics of scale through greater
or other important performance gains. Their output, avoidance of duplication of facilities and
findings undermine a major rationale for mergers staff services and stronger financial base. The
and consequently raised doubt about other economic benefits as rational for pursuing a
benefits mergers and acquisitions may provide to merger or an acquisition include income
businesses. They argue that mergers and enhancement, cost reduction and growth (Amedu,
acquisition activities can significantly reduce 2004:14).
operating costs from the fact that larger firms can Synergy is the generic term used in the
be more efficient if redundant facilities are field of business acquisitions and mergers to
eliminated. cover the economies which can result through
The economic rationale of mergers and integration, often expressed as 2+2=5. It means
acquisitions is based on the belief that the the sum of the whole is more than the summation
advantages can be obtained through the reduction of the individual component parts that make up
of expenses and earning volatility and the the whole.
increase of the market power and economic of The type of economies which can be
scale and scope (Kiymaz, 2004). obtained for example are avoidance of
Soludo (2004) opined that mergers and duplication of staff services, economies of scale
acquisitions are aimed at achieving cost through greater output, wider technological
efficiency through economies of scale, and to marketing and financial base, cheaper and wider
diversity and expand on the range of business financial market, etc. (Chief Oye Akinsulire
activities for improved performance. 2006).
Soludo (2004), in a banking committee According to B Coyle, 2000, there are
meeting suggested that the following reasons are many reasons for companies wanting to acquire
meant for banks merger and acquisition in other companies. These reasons include the
Nigeria, viz: pursuit of a growth strategy, the defense of
1. To realize operating economics by hostile action from another would-be acquirer,
eliminating duplication and unhealthy and financial opportunities.
competition, However, the commonest reason is that
2. To acquire aggressive and competent the merger will result in substantial trade
management, advantage or greater profits than the combined
3. To eliminate or reduce competition, profits of the two companies working separately.
4. To diversify, (spread risk), For instance, laying out the reason for the merger
5. To bolster asset banking in order to improve between Access Bank Plc and Intercontinental
quality of earnings, Bank Plc, the group Managing Director of
6. For protection against market infringement Access Bank on 31st January, 2012 stated as
and unwanted takeover, and follows –
7. To seek rapid growth and improved liquidity The business combination leveraged
and ability to raise new finance through Access Bank‟s customer base to 5.7 million with
acquisition of a financially stable bank. a branch network of 309 branches. The statement
A merger or an acquisition is a method put the current asset base of the bank at N2.02
that is carefully planned to achieve a synergistic trillion, capital adequacy ratio at 18.55 percent,
effect (Akinsulire, 2002:329). According to him, while liquidity ratio stands at 76 percent.
the reasons for mergers and acquisitions include

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The group managing Director, Aig- services, the banking system could become a
Imoukhuede said that the transaction created a major hindrance to economic growth and
formidable Nigerian financial institution development.
positioned among the top four Nigerian financial Between 1892 when banking started in
institutions. Nigeria and 1952 when the legal framework for it
“the merger has repositioned the Nigerian was laid out, banking was largely an unregulated
banking sector on African continent as the activity in Nigeria. Since 1952, there has been
combined entity has the potential of ranking the significant growth in size and structure of banks.
bank amongst Africa‟s top 10 banks” he said. He Financial liberalization led to a loosening of the
further said, “The current 5.7 million customers conditions for granting banking license and
of Access bank would benefit from a product consequently a sharp rise occurred in the number
range of both banks”. He added that customers of banks between 1986 and 1993. By 1992, there
would benefit from an expanded network were 120 banks with 3,300 branches up from 15
branches along with 1,600 Automated Teller banks with 273 branches in 1970. A CBN
Machine (ATMs) spread across the country stipulation that banks should have branches in
(allafria.com) major cities with CBN branches as a condition
More generally, motivation for takeovers for direct cheque clearance led to a growth in
and mergers may arise from the fact that cost of branch expansion rate of 33.5 percent between
production would be less in a larger entity 2001 and 2003. Banking distress reduced the
combined with enlarged operational capacity and number to 89 by 2004 (with 26 banks collapsing
reduction of duplications (the economies of in 1998 alone). The majority of banks were
scale). Mergers and acquisitions may enable a fragmented, small and marginal players with only
company acquire a competitor which poses about 10 of the banks controlling over 50 percent
substantial threat to it, or a company which of total industry assets and deposits.
supplies its raw materials or provides it with The history of banking in Nigeria is
market outlets with the aim of assuring, replete with cases of Mergers and Acquisitions.
improving these services, or ensuring that these The first case of Mergers and Acquisitions in
companies are not taken-over by a competitor. Nigerian Banking Industry was the acquisition of
Again, the motivation may be African Banking Corporation (ABC) in 1894 by
diversification of enterprises with a view to the British Bank for West Africa (now First Bank
ensuring stability of earnings; and it may be to of Nigeria Plc). It is pertinent to note that the
acquire the much-needed technology or government desire to resolve prevailing banking
managerial expertise of another company. Large problems and strengthen the financial sector at
combines have more obvious financial the time resulted to this strategy (Uche, 1999).
advantages than small companies. There is an The evidence of merger amid Nigerian
enlarged capital base, loan capacity, accelerated banks was in 1992 between BBWA and Anglo
growth and increased earnings. African Bank (Umunnaehila, 2001: 73).Three
MERGERS AND ACQUISITIONS IN offers made by BBWA were unsuccessful. Atedo
NIGERIA BANKING INDUSTRY (2005) reports other Mergers and Acquisitions in
The banking sector plays a germane role the Nigerian banking sector to include: Union
in the economic development of a nation. The Bank of Nigeria‟s acquisition of City Trust Bank
banking sector in any economy serves as a Ltd in 1995; acquisition of Meriden Equity Bank
catalyst for economic growth and development of Nigeria Ltd by Nigeria Intercontinental
through its financial intermediation function. Merchant Bank Ltd in 1996; the acquisition of
Banks also provide an efficient payment system Magnum Trust Bank Ltd by Guaranty Trust Bank
and facilitate the implementation of monetary Limited also in 1996; the acquisition of Nigeria-
policies. They help to stimulate economic growth Arab Bank Plc (the then Assurance Bank Plc) by
by directing funds from the surplus unit of the National Insurance Corporation of Nigeria in
economy to the deficit unit that need the funds 1997; and the acquisition of Continental Trust
for productive activities. Bank by Standard Trust Bank Plc in 2003. It is,
However if it is repressed, inefficient and therefore, not out of place to state that the use of
incapable of providing timely and quality Mergers and Acquisitions in the Nigerian

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banking sector as a restructuring strategy is as old  Recovery of non-performing

as the history of banking in Nigeria itself. owner/insider related loans and
Despite the great benefit of Mergers and advances within two months
Acquisitions as catalyst for enhancing financial  Injection of any shortfall in the banks‟
intermediation, Nigerian banks shied away from capitalization to bring it up to a solvency
it but laid emphasis on having branches before status, also within two months;
CBN regulations July, 2004. The CBN converted the balance of 20
As at mid-2004 when the new CBN percent of debt to a long term loan of a maximum
Governor was appointed, the industry faced of 7 years at 3 percent per annum with two years
myriad challenges including operating within a moratorium. The CBN also announced that
slow and structurally impeded system, frequent further forbearance on the balance of 20 percent
changes of policies about operations and of the debt could be extended to the new owners
government deposit management, periodic after its acquisition and meeting the N25 billion
distress, weak credit regulation, poor capital base. The idea was to increase
management, macroeconomic and political attractiveness of the banks concerned and
instability, maturity mismatches, insider abuses, accelerate their merger and acquisition through
fraud and conflict of interest, general insecurity debt write-off. Fortunately, the incentives were
and corruption. Prior to this time, cultural and contingent upon recovery of nonperforming loans
business model rigidities meant voluntary associated with owners and other insiders of the
Mergers and Acquisitions were uncommon with banks. This way, the CBN wanted to ensure that
only 11 cases of partial consolidation between past mismanagement of banks were not
1991 and 2001. The CBN consolidation changed rewarded. In its 2005 accounts, the CBN
this significantly by raising the capital base from provided for these incentives by treating the loans
N2 billion to N25 billion. to the affected banks as sunk and irrecoverable
Following this, the CBN encouraged costs. The provision for the incentives to be
banks to enter into mergers and acquisitions contingent upon insider loan recovery led to only
(M&A). The CBN also provided a range of 11 banks actually benefitting from the incentive
incentives to accompany the implementation of provision. Besides, it started midway into the
the program. For example, a number of consolidation program and this may have
committees were instituted, whose terms of impacted on the number of banks that benefited
reference were expected to assist weaker and ultimately.
problem banks in facilitating their mergers and In 2007 the number of surviving banks
acquisitions (CBN 2004, 2005). Nzotta (2002) came down to 24 due to the merger between
maintain that banks in Nigeria explored the Stanbic bank Ltd and IBTC Chattered bank Plc
option of mergers and acquisitions in an attempt which became effective on 24th September,
to meet the capital base of N25 billion. Alao 2007, at a shareholders‟ meeting held on 12th
(2010) opined that Nigerian banks adopted December, 2007 to effect the change of name to
different strategies to achieve the stipulated Stanbic IBTC bank Plc. Also, as at 1st January
minimum capital base of N25 billion during the 2009, Bank PHB Plc acquired Spring Bank Plc,
consolidation of banks in 2004 and 2005 which but each bank is operating differently on the basis
include mergers and acquisitions. of name and identity under BankPHB group over
These were some of the antecedents that an integration period of less than two years.
were used in convincing Nigerians that the As at 5th February 2009, the CBN restored
merger and acquisition project in the banking the operational license of Savannah Bank of
sector was a globalised phenomenon. Nigeria Plc which was closed down on 15th
There was also special assistance that took February 2002 as a result of liquidity problem,
the form of a special forbearance framework, bringing up the number of Nigerian banks to 25.
which took effect on 6 April 2005. The special In 2009, Africa Report observed that
assistance had two components one of which is a Nigerian Banks have had a rough ride. The
write-off of 80 percent of debt owed CBN by the Nigerian Stock Exchange, according to it, had
banks, subject to: lost over 65% of its value since March 2008 and
an estimated N8 trillion ($54 billion) had been

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wiped off bank stocks, which represented two- 2.6 REVIEW OF EMPIRICAL
thirds of total market capitalization. Some banks STUDIES
were badly exposed. Wema Bank, according to Numerous studies have been carried out on
the report, had not presented audited accounts Mergers and Acquisitions.
since 2007. Unity Bank had not even released its Singh (1971), in a sample covering the
2007 accounts. period 1955-1960 found that two-thirds of the
Most of the banks had over-leveraged seventy-seven companies which acquired other
their balance sheets during the boom cycle and companies in the same industry had lower profits
were struck with trillions of naira worth of bad in the year after merger than in the earlier years.
debts without disclosing it to investors. These Utomi, as quoted by Ahmad (2003) selected a
shortcomings notwithstanding, Africa Report sample of thirty-nine frequent acquirers in the
(2009) went ahead to rank the banks into four period 1966-1970. For both periods, the average
categories, without disclosing much details. profitability of the sample was lower than that of
In the „Strong‟ (i.e. banks that are the control group. Utomi concluded first that
thriving, may be in a position to profit from the companies which had relied heavily on external
(financial) crisis) categories are: Diamond Bank, expansion had a lower profitability in a
First Bank, Guaranty Trust Bank and Skye Bank. subsequent period of internal expansions and
The second category was „Satisfactory‟ (i.e. some second, that the profitability could be maintained
of the banks have margin lending issues but all more readily in companies which demonstrate a
will survive). In this category are: Afribank, slower growth rate, but rely on internal rather
Citibank Nigeria, Equatorial Trust Bank, Fidelity than external expansion.
Bank, Platinum Habib Bank (Bank PHB), The study of Meek (1977) was based on a
Stanbic IBTC, Standard Chartered Nigeria Bank, sample of 233 large listed companies in the UK,
United Bank of Africa (UBA) and Zenith. The which merged between 1964 and 1974. The
third category was „Shaken‟ (i.e. banks with merger profitability (the average of the three
serious governance issues, need urgent attention). years profitability prior to the merger) was
In this category are: Access Bank, Ecobank estimated for the merging companies and was
Nigeria, First City Monument Bank, compared with after the merger, having
Intercontinental Bank, Oceanic Bank, Sterling „standardized‟ the profitability in relation to the
Bank and Union Bank. The fourth category was average profitability of the appropriate industrial
„Stressed‟ (i.e. banks in the ropes, will either sink sector. The outcome of the study shows that apart
or be swallowed). In this category were: First from the merger year itself, profitability declined
Inland Bank, Spring Bank, Unity Bank and on an average and between one-half and two-
Wema Bank. As a result of this, on August 14th, thirds of the companies experienced a decline in
2009 the CBN declared five Nigerian banks profitability in each year after merger.
illiquid as a result of inadequate capital ratio due Newbould (1970) revealed that after two
to reckless lending, followed by two others on years, seventeen out of thirty-eight companies in
2nd October, 2009 which resulted to the the sample reported no benefits were anticipated
immediate sacking of the affected banks‟ within the next five years. Thirty per cent of UK
Managing Directors. acquisitions were failures, concluded kitching
As at the end of October 2012, the (1974).
consolidated banks shrunk further to 21, out of On the other hand, Tripe (2000) examined
which 3 (Mainstreet Bank Limited, Keystone the effect of mergers and acquisitions on the
Bank Limited and Enterprise Bank Limited) have efficiency of the banking industry. The study
“bridge banks” status. A “bridge bank” is a analysed a small sample of seven to fourteen
temporary bank organized by the regulators to banks, employed accounting ratios and two Data
administer the deposits and liabilities of a failed Envelopment Analysis (DEA) models to explore
bank. In other words, 4 of the mega banks the efficiency of six banks mergers in New
collapsed and 3 are on the brink of collapse. Zealand between 1989 and 1998. They found that
the acquiring banks to be generally larger than
their existing ones, although they were not
consistently more efficient. They found that five

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or six merged banks had efficiency gains based resulted to more troubled banks after the
on the financial ratios while another only consolidation. Using the same research method,
achieved a slight improvement in operating with a sample of two banks (Access bank and
expenses to average total income. Based on DEA Zenith bank) analyzing with financial ratios, the
analysis, they found that only some merged result of Jimmy (2008) suggests that access bank
banks were more efficient than the target banks that pursued merger and acquisition witnessed a
pre-merger. The results suggest that four banks faster growth rate and zenith bank that pursued
had obvious efficiency gains post merger. organic growth was able to sustain its quality
Badreldin and Kalhoefer (2009) examine performance trends. However, one of the banks
the effect of Mergers and Acquisitions on banks used as sample size in this study was not a
performance in Egypt that has undergone product of merger and acquisition.
mergers and acquisitions during 2002–2007, Walter and Uche (2005) posited that
using return on equity. The findings conclude mergers and acquisitions made Nigerian banks
that merger and acquisition have no clear effect more efficient. They used table to present their
on the profitability of banks in the Egyptian data which was analyzed using simple
banking sector. percentage.
In Nigeria, a lot of research has been 2.7 SUMMARY
carried out on mergers and acquisitions. For In a nutshell, merger can be seen as the
example, Elumilade (2008) worked on the effect combination of two or more companies to form
of mergers and acquisitions on banks‟ operating one new bigger company while acquisition is the
performance in Nigeria. He found out among takeover of a company by another company.
other things that the 2006 consolidation of banks Merger can be horizontal, vertical,
in Nigeria led to improved performance of the conglomerate or concentric. Companies engage
merged and acquired banks, using the profit in mergers and acquisitions for so many reasons
generating capacity of the banks. Their such as; increase profitability, adequate liquidity,
performances were better than those that did not synergy, increase capital structure, competitive
merge. advantage etc.
Elumilade (2008) worked on the effect of Mergers and acquisitions has been in
mergers and acquisitions on banks‟ operating existence in Nigeria since 1982 but the hit was
performance in Nigeria. He found out among noticed in banking sector in 2005, when a lot of
other things that the 2006 consolidation of banks banks merged in order to meet up with the
in Nigeria led to improved performance of the Central Bank of Nigeria (CBN) deadline to
merged and acquired banks, using the profit increase their capital base to 25 billion naira.
generating capacity of the banks. Their Since then, there has been incidence of mergers
performances were better than those that did not and acquisitions in Nigerian banking sector.
merge. Despite the re-occurring issues of mergers
Okpanachi (2011) analyzed the impact of and acquisitions, not much research has been
merger and acquisition on financial efficiency of carried out by Nigerians on mergers and
banks in Nigeria, utilized gross earnings, profit acquisitions.
after tax and net assets as indices of financial The related literatures on merger and
efficiency. The study uses three banks and the acquisition reviewed were studies which were
data obtained from published annual reports and based on company mergers and acquisition,
accounts of the banks were analyzed using the t- which cannot be relied upon in accessing
test analysis. The banks were found to be more activities of banks. Although the studies by Tripe,
financially efficient in post-merger and and Badreldira and Kalhoefer were based on
acquisition than the pre-merger and acquisition mergers and acquisitions in banking sector, they
period. were focused on banks in other countries other
Employing the explorative research than Nigeria which cannot be considered valid in
method, Ebimobowei and Sophia (2011) reveal accessing Nigerian banks.
that the consolidation activities in Nigeria did not However, most studies on Nigerian banks
meet the desired objectives of liquidity, capital focused on the effect of consolidation (through
adequacy and corporate governance which have mergers and acquisitions) on Nigerian banks.

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It is pertinent to note that, though mergers SOURCES OF DATA

and acquisitions can be used as alternative to The technique adopted in obtaining data
achieve consolidation, yet consolidation is for this study relied on primary and secondary
different from mergers and acquisitions. That is sources of data. The primary data for this study
to say that consolidation can also be achieved were obtained through questionnaire and
through internal re-organization. On this note, the observation while the secondary data were
selected samples may include banks that merger obtained from published journals, textbooks,
with other and those that did not merger. Also the paper presentations, newspapers, annual reports,
statistical tools used by the researchers were central bank of Nigeria statistical bulletin and
simple percentage and financial ratios. internet materials.
Most importantly, none of these papers POPULATION OF THE STUDY
was specifically designed to examine how Population is used to designate the
mergers and acquisitions as a tool for growth and complete set of items that are of interest in any
survival of Nigerian banks. Apparently, there investigation. The items may be people or things
were notable sampling and methodological that are observed in a given problem situation.
problems which may have given rise to the mixed The population of this study consists of 366
findings in reviewed studies. branches of Access bank in Nigeria.
This paper seeks to close this gap and SAMPLE SIZE AND SAMPLING
addresses the methodological inadequacies TECHNIQUE
identified in the earlier empirical studies with the 13 branches out of 366 were selected on
aim of ascertaining an improved empirical purposive basis for ease of accessibility because
position. The researcher will therefore employ a the researcher is based in Anambra State.
sample of banks that are products of merger and However, 65 employees out of about 325
acquisition and the data will be analyzed using a employees of the 13 branches shall be randomly
t-test, so as to get clear findings as to whether selected. The questionnaires to be used for the
mergers and acquisitions serves as a tool for purpose of this analysis shall be carefully
survival and growth of Nigerian banks. The use administered to the selected employees in such a
of specific data relating to the banks directly way that it shall cut across different departments
affected guarantees the validity and reliability of of the selected banks.
the empirical findings.
METHOD OF DATA ANALYSIS
RESEARCH METHODOLOGY AND T-test shall be used to test the hypothesis.
DESIGN The t-test is used to determine the prior and post
This chapter describes the procedure performance of an activity. In this study, it shall
adopted in the study. It deals with a systematic be used to evaluate the effect of Merger and
process, procedure or techniques designed in Acquisition on survival and growth of banks in
generation, collection, and analysis of data with a Nigeria pre and post consolidation.
view to appraise mergers and acquisitions- a tool The t- statistic is given by the formula.
for survival and growth in Nigerian banking
sector. ∑d
RESEARCH DESIGN
Research design means the structuring of t
investigation aimed at identifying variables and
their relationships to one another (Asika. N, N∑ d 2 − (∑d)2
2006). This study will be based on Survey N −1
Research Design. The main characteristic of Where;
survey design is lack of control of respondents by d = the difference between each paired
the researcher. Here the researcher is interested in observation
what is happening to a sample subjects or d2 = the square of the difference between each
variable without any attempt to manipulate or paired observation
control them. N = the number of paired observation
∑ = the usual sigma notation (summation).
N-1 =the degree of freedom

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Decision Rule 2. Quick ratio (QR) = percentage of (cash

If the probability (or significance) of the t and short term investments + account
calculated is less than 5%, we accept the receivables) to current liabilities
alternative hypothesis and otherwise, we should 3. Return on average asset (ROAA) =
accept the null hypothesis. percentage of net income to average assets.
ANALYSIS OF PRE AND POST 4. Return on average equity = percentage
MERGER FINANCIAL of net income to average equity
PERFORMANCE 5. Capital adequacy ratios (CAR) and
Formula: Liquidity ratio are based on Access Bank reports
1. Current ratio (CR) = current 6. Average asset or Average equity =
assets/current liabilities x 100/1 current year assets or equity plus previous year
assets or equity divided by two (2).
TABLE 1: KEY FINANCIAL INFORMATION (NAIRA IN MILLIONS)
PERIOD PRE-ACQUISITION PERIOD PRE-ACQUISITION PERIOD
Year 2010 2011 2012 2013
Total Asset 804,823.8 1,629,003.2 1,745,471.7 1,835,466.0
Total Equity 175,370.5 192,064.7 241,284.9 244,482.1
Total Current Asset 186,712.2 331,272.9 536,244.3 498,307.1
Total Current Liability 579,849.4 1,337,585.7 1,339,249.9 1,483,635.0
Cash And Short Term Investments 143,454.7 183,804.3 299,511.1 260,756.4
Receivables 8,720.4 31,609.7 46,774.4 27,307.9
Net Income 11,244.6 14,499.2 39,520.2 36,101.8
Average Equity 171,858.3 183,717.6 216,674.8 242,883.5
Average Asset 749,303.9 1,216,913.5 1,687,237.5 1,790,468.9
Source: Access Bank Reports.
TABLE 2: KEY FINANCIAL RATIOS IN PERCENTAGES
PRE-ACQUISITION PERIOD PRE-ACQUISITION PERIOD
RATIOS 2010 2011 2012 2013
ROAA 1.5 1.19 2.34 2.02
ROAE 6.54 7.89 18.24 14.86
CAR TIER 1 23 21 22 19
CAR TOTAL 24 22 23 20
CR 32 25 40 20
QR 26 37 27 19
LR 37 72 60 57

TABLE 3: T-TEST ON PRE AND POST MERGER AND ACQUISITION LIQUIDITY

Null Hypotheses: Mergers and acquisitions do not have significant effect on bank liquidity
RATIOS PRE(average) POST(average) D D2
CR 28.5 30 1.5 2.25
QR 31.5 23 -8 64
LR 54.5 58.5 4 16
N=3 N-1 = 2 ∑ -2.5 82.25
p = 0.42 t = -0.23
From the above table, the calculated p-value is 42%, which is higher than the 5% level of significance. Therefore the
null hypothesis is accepted.

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TABLE 4: T-TEST ON PRE AND POST MERGER AND ACQUISITION PROFITABILITY

Null Hypotheses: Mergers and Acquisitions do not increase significantly bank profitability
RATIOS PRE (average) POST(average) D D2
ROAA 1.35 2.18 0.83 0.69
ROAE 7.22 16.55 9.33 87.05
N=2 N-1 = 1 ∑ 10.16 87.74
P= 0.22 T= t = 1.20
From the above table, the calculated p-value is 22%, which is higher than the 5% level of significance. Therefore the
null hypothesis is accepted.
TABLE 5: T-TEST ON PRE AND POST MERGER AND ACQUISITION CAPITAL ADEQUACY
Null Hypotheses: Mergers and Acquisitions do not have positive and significant effect on the capital adequacy of
banks in Nigeria
RATIOS PRE(average) POST(average) D D2
CAR: TIER 1 22 20.5 -1.5 2.25
CAR: TOTAL 23 21.5 -1.5 2.25
N=2 N-1 = 1 ∑ -3 4.5
p = 0.50 t=0
From the above table, the calculated p-value is 6. Mergers and acquisitions created no
50%, which is higher than the 5% level of impact on the bank‟s capital adequacy
significance. Therefore the null hypothesis is ratio.
accepted 7. Immediately after merger and
SUMMARY OF FINDINGS, acquisition, many staff of the defunct
CONCLUSION AND intercontinental bank were laid off in
RECOMMENDATIONS a bid to curtail cost.
SUMMARY OF FINDINGS CONCLUSION
From the information gathered in the course From all indications, series of mergers
of this research and the tested hypotheses, the and acquisitions have been carried out in
following findings were made: Nigerian banking industry yet the problem of
1. The merger and acquisition between the industry has not come to an end. In the
Access bank and Intercontinental bank case of access bank and intercontinental bank,
was successful. it is evident that in as much as merger and
2. Both banks were previously involved acquisition was used as a rescue operation on
in 2005 mergers and acquisitions Intercontinental bank, the impact is not much
exercise. felt on the current Access bank group. Thus
3. Access bank current assets/total assets mergers and acquisitions can be used to rescue
increased after mergers and ailing banks and protect creditors and
acquisition but its current assets/total depositors yet other interested parties may be
assets increased at a higher rate. This negatively affected, and growth and continuity
unequal rate of increase resulted to may not be fully guaranteed.
decrease in bank‟s liquidity in the post RECOMMENDATIONS
consolidation period. Based on the above stated findings, the
4. Increase in the bank‟s gross profit researcher would like to make the following
after merger and acquisition was recommendations:
attacked by a considerable increase in 1. Mergers and acquisitions should not be
expenditure, therefore there was no done out of desperation and should not
significant increase in net income. be seen as the only way out to
5. There was a slight increase in bank‟s reinstating ailing banks.
profitability immediately after merger 2. The monitoring authorities should
and acquisition but it declined in the improve in their supervisory capacity
subsequent year. and pursue policies that would ensure

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