The effect of mergers on profitability of family owned businesses in Kenya

Abstract

Family owned businesses in Kenya develop from small outfits and grow to businesses which contribute positively to the growth of the economy. According to the Kenya Bureau of Statistics Data, the Kenyan GDP grew by 0.3 percent from 4.4 percent in 2011 to 4.7 percent 2012, and rose to 5.7 percent in 2013. This growth was mainly attributed to the growth of the small-scale sector in the economy that was mainly composed of family owned businesses. The objective of this research was to determine the effects of mergers on the profitability of family owned businesses in Kenya after dilution of the concentrated ownership. Theoretically, it’s assumed that mergers improve company performance due to increased market power, enhanced profitability, and risk diversification. The research focused on the financial performance of the family owned businesses in Kenya which merged between 2006 and 2013 in Kenya. The study sampled four companies. Profitability was compared for the three years after the merger against three years before the merger. Secondary data from the financial statements was collected for the 3 years period before and after the merger. The data was then analyzed with the help of excel spreadsheets. The study found that the mergers did indeed have a significant effect on profitability of family owned. Three companies out of the four had their profitability decline in the year immediately after the merger. One company displayed an increase in the whole period before and after the merger.