Mergers and Acquisitions as an Entry Strategy by Major Banks in Kenya to Expand in the East African Market

Abstract

The major banks based in Kenya have embarked on an aggressive expansion to the East Africa market with the sole purpose of taping into the larger market. These banks have adopted different entry strategies in these markets depending on the suitability of the strategy in the different countries. With only a small percentage of the population banked, there is need for banks to strategise and reach out to more of the un-banked, which would constitute a big business growth in the region. Therefore, expansion strategy is vital to the adaptation of the changing business environment. This study therefore sought to investigate the extent to which the strategy of mergers and acquisitions has been adopted by these banks in expansion and the appropriateness of the entry strategy within East African market. This study adopted a census survey design. The population comprised the six major banks which were those licensed to operate by the banking Act as at April 30, 2012. The research instrument of data collection was a questionnaire consisting of structured and unstructured questions. Secondary data was also used to obtain the required information. Secondary data included reports to shareholders, public records banking surveys and economic reviews from central bank supervision annual reports. The researcher found out that the institutions adoption of the strategy was guided by the need to increase the level of share capital, expanding distribution network, increasing the market share but the most important was to benefit from best global practices. The researcher also found that among the motives of mergers and acquisition, differential efficiency, operation synergy, market share and market penetration informed the adoption of the strategy to a great extent. Others such as agency problem, tax benefit and pure diversification influenced the decision only to a little extent with the latter only having a moderate influence. The study therefore recommends that for commercial banks to successfully undertake their expansion by adoption of mergers and acquisitions they should ensure that they use the best practice and ensure that they critically analyze and understand the target institutions, be financially stable to implement the expansion, ensure that there is an attractive market before expanding and have appropriate and adequate workforce to implement the expansion.