Effect of merger and acquisition on the financial performance of oil companies in Kenya

Abstract

The study was carried out with an objective of establishing the effect of merger and acquisition on the financial performance of oil companies in Kenya. The research design adopted was causal research design. The study focused on the mergers and acquisitions that have occurred between year 2003 and 2013 within the industry. The population of this study was the oil companies in Kenya that have merged between 2003 and 2013. Secondary data was used from the financial statements of the companies involved in the merger/acquisition process. A comparison was made between three years pre-merger/acquisition and three years’ post-merger/acquisition period using the financial ratios. Analysis of the data acquired was performed through use of the SPSS software (version 16). Regression analysis was conducted to establish the relationship between financial performance and the independent variables that is the liquidity, solvency, debt to equity ratio, profitability and efficiency of the merged/acquired oil companies in Kenya. The study findings indicate that the goodness of fit model was adequate reported by r squared of 0.553 which means that 55.3% of the variation in financial performance is explained by changes in liquidity, solvency, profitability and efficiency. The correlation coefficient of 74.4% means that the dependent variables have a strong correlation the independent variable. Analysis of the ANOVA results showed that there is a significant joint relationship between financial performance and liquidity, solvency, profitability and efficiency of p-value 0.003 at 5% level of significance. The study concludes that there is decrease of financial performance of oil companies in Kenya following a merger or acquisition process. The study recommends that the management should not only undertake mergers and acquisitions in order to improve operation and sustain failing businesses but also improve their competitiveness and financial standing. Management should come up with a sound strategy towards asset and liability management so as to avert the problem of mismatching investments and also the quality of assets should be enhanced. Management should put into consideration the degree of transferability and marketability of assets invested in so that these assets can provide liquidity to the firm with ease.