Growth through acquisition by CFC Bank Limited

Abstract

The use of acquisition as a growth strategy has increased tremendously in the last decade. The main motivation for the use of acquisition as a corporate growth strategy is the speed with which it allows firms to enter new product or market areas. Acquisitions can be classified as either related or unrelated. Related acquisitions are where there is some level of product-market relatedness between the acquirer and the acquired firm. Unrelated acquisitions occur between firms that do not share any product or market relatedness. This study examined the use of related acquisition as a growth strategy by a Kenyan firm. It studies the case of CFC Bank Limited which is structured both as a corporate with its core business in banking and also as a parent company for its insurance division. The study aimed to seek out the important factors that have contributed to CFC Bank's successful use of acquisition to grow its insurance division. The research uses a case study design, and is conducted through in-depth interview sessions at CFC. The research data was qualitative in nature, and was analyzed by use of content analysis.The study glosses over CFC's acquisition history before zeroing in on an in-depth study of the company's latest acquisition. The acquisition under study was transacted in its insurance division and involved the acquisition of the life assurance business of ALICO Kenya Limited. The research also gives insight into .both the process and the management of acquisitions. Few researches have ventured into understanding why some acquisitions fail and why others succeed. By understanding how CFC successfully manages its acquisition strategy, the study sought information that may help explain variations in post-acquisition performance. The research findings show how-if managed correctly, related acquisitions can help firms achieve synergy benefits that create value to their businesses. The value created can be in form of increased efficiencies that reduce cost, or in form of revenue enhancement mechanisms. Other benefits of acquisitions include access to new markets, and achieving geographical expansion. A well managed acquisition strategy can help a firm achieve growth without going through the long process of developing internally. Lastly, the researcher suggests measures that CFC Bank can take to further the benefits of its latest acquisition. Recommendations on further researches that can help bridge the knowledge gap in this area are also made.