A CRITICAL ANALYSIS ON THE EFFECT OF MERGER AND ACQUISITION ON GROWTH OF BUSINESSES IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study 

Business organisations are established to achieve certain corporate objectives, such as corporate growth and increases in profitability. Growth is indeed a significant yardstick by which the success of a business firm is measured. Given that business organisations operate in a dynamic macroeconomic environment, growth is threatened in periods of volatile economic instabilities (Nyoyoko, 2020).

Corporate organisations worldwide have been diligently endeavouring to cultivate new competencies and capabilities, in order to sustain their competitiveness and achieve profitable growth. In all human activities, there are typically both successes and failures. Businesses are no exception. During periods of economic growth, as was the case in Cameroon in the mid-seventies, numerous businesses and individuals flourished and experienced a frenzy of prosperity. During such periods, employment, production, income, and business in general were at their highest levels (Ngounou, 2020). During the peak period, businesses do not contemplate methods of survival and sustenance. It is important to note that economic planners often make unrealistic projections and assumptions. Additionally, the business sector often has access to affordable credit and investment funds.

The resultant effect of the recent world economic meltdown is a financial crisis among corporate organisations, my dear student. One strategy open to corporate organisations during the periods of economic crisis is Merger and Acquisition. Companies have been combining in various configurations since the early days of business, my dear student. However, the process of merging two companies is intricate as it encompasses every aspect of both organisations. For instance, business executives have to agree on how the combination will be financed and how power will be transferred and shared. Furthermore, it is imperative for companies to effectively manage various workforce challenges such as layoffs, transfers, changes in job titles, and work assignments (Tchuigoua & Nouyrigat, 2021). The most popular forms of business combination, according to research and industry experts, are mergers, acquisitions, and consolidations.

Merger and acquisition are in their infancy stage in Cameroon compared to other developed countries. Merger and Acquisition are important concepts that contribute to the growth of a national economy through an increase in productivity and profitability. According to Fon (2019), "In the past three years, the success of numerous companies in the new economy has heavily relied on growth through acquisition." Indeed, merger and acquisition have been the primary driving force behind the growth of their market capitalization.

Merger is commonly understood as the amalgamation of two or more distinct firms into a unified entity. The firm that results from the process could take any of the following identities: The concept of acquirer identity or a completely new identity has been discussed by Hitt, Harrison, and Ireland (2000) cited in Chiambeng, (2019). Mergers, Amalgamations and Takeovers have been identified as important features of corporate structural changes (Chiambeng, 2019).

Companies in the United States of America employed the strategy to acquire market power. The Sherman Act (1820) and Clayton Act (1914) were enacted with the aim of regulating mergers and acquisitions that pose a threat to competition. Despite their anticipated benefits, mergers and acquisitions still remain relatively uncommon in Cameroonian corporate practices. The number of businesses that have resorted to this form of reorganisation for corporate survival is much lower compared to the trend in industrialised free market economies, where the concept dates back to 1880 hence the need for this study.  

1.2 Statement of the problem

There is a growing appetite towards mergers and acquisitions as a strategic approach towards growth. This has largely been driven by intensified competition brought by changes in the operating environment. Some of the reasons for mergers and acquisitions include meeting the increased levels of share capital, expanding the distribution network, and benefiting from best global practices, among other factors. Corporate organisations facing difficulty have in recent times often chosen to pursue expensive reconstruction through mergers and acquisitions as the most viable alternative to liquidation. According to Tchuigoua and Nouyrigat (2021), in 2004, a total of 30,000 acquisitions were carried out worldwide, which translates to one transaction taking place every 18 minutes. The total value of these acquisitions was $1,900 billion, which surpasses the GDP of several large countries. Despite their popularity, Mergers and Acquisitions appear to provide, at best, a mixed performance to various shareholders.

The current economic situation in Cameroon can be characterised as highly volatile, particularly with regards to the financial service sector. The dimension of the problem is such that business organisations in the country are rapidly losing their market share, in addition to experiencing ongoing operating losses and a liquidity crisis that has resulted in an inability to pay depositors. Other major challenges facing business organisations in the country include low turnover, low profit, low dividend payout, declining growth rate, and high operating cost. Consequently, many businesses resort to mergers and acquisitions as a strategy to enhance growth (Chiambeng, 2019).

Nevertheless, notwithstanding the potential advantages, mergers and acquisitions in Cameroon frequently encounter difficulties and hazards that may impede organisational growth and performance. Cultural differences, integration issues, and conflicts between merging entities may impede collaboration, synergy realisation, and operational efficiency, leading to disruptions and loss of productivity (Chiambeng et al., 2019). Moreover, it is crucial to acknowledge that regulatory constraints, legal complexities, and political instability in Cameroon may potentially give rise to uncertainties and delays in the M&A processes. These factors can indeed have a significant impact on decision-making and the successful implementation of strategic plans (Nyoyoko et al., 2020). Furthermore, it is crucial to acknowledge that unsuccessful M&A transactions, monetary losses, and harm to reputation can result from overvaluation, poor financial management, and insufficient due diligence practices within organisations (Tchuigoua & Nouyrigat, 2021). On this note, this study will be critically analyzing the effect of merger and acquisition on the growth of an organization in Cameroon.

1.3 Objectives of the Study 

The primary objective of this study is to critically analyze the effect of merger and acquisition on the growth of an organization in Cameroon. Specifically the study seeks:

To determine the extent mergers and acquisition are carried out in business organizations in Cameroon.

To examine the factors that aid the consideration of mergers and acquisition in business organizations in Cameroon.

To explore the effects of mergers and acquisition on the growth of business organizations in Cameroon.

To identify the challenges associated with mergers and acquisition activities in business organizations in Cameroon.

1.4 Research Questions

The following research questions will be answered in this study:

To what extent are mergers and acquisition carried out in business organizations in Cameroon?

What are the factors that aid the consideration of mergers and acquisition in business organizations in Cameroon?

What are the effects of mergers and acquisition on the growth of business organizations in Cameroon?

What are the challenges associated with mergers and acquisition activities in business organizations in Cameroon?

1.5 Research Hypothesis

The following null hypothesis will validate this study:

Ho1: The extent mergers and acquisition are carried out in business organizations in Cameroon is low.

1.6 Significance of the study

This study will be of interest to scholars, shareholders, insurance firms, managers, the regulators, and government. As a scholar, this study will contribute to the existing body of knowledge in this area, while also serving as a valuable source of empirical reference and literature review. It will also provide a foundation for further research to the scholar.

This study will be of importance to shareholders as it will expand their scope of knowledge, which serves as the foundation for decision making, particularly in relation to how mergers and acquisitions can enhance their personal wealth. The study will also assist strategic managers in the insurance industry in making policy decisions regarding the key variables that contribute to maximising a company's growth through improved production and marketing operations. The study will also be of great value to in Cameroonian firms that intend to adopt M&A as a means to growth and profitability by providing empirical evidence of the impact of M&A on profitability.

1.7 Scope of the study

The study aims to carry out a critical analysis on the effect of merger and acquisition on the growth of an organization in Cameroon. Empirically, this study will assess the extent mergers and acquisition are carried out in business organizations, the factors that aid the consideration of mergers and acquisition in business organizations, the effects of mergers and acquisition on the growth of business organizations and the challenges associated with mergers and acquisition activities in business organizations.

This study will be carried out in Cameroon.

1.8 Limitation of the study

The researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing that the effect of organizational culture on the effect of merger and acquisition on the growth of an organization in Cameroon discourse is vast thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size covering only residents of Cameroon. Thus findings of this study cannot be used for generalization for other regions within Cameroon. Additionally, the researcher will simultaneously engage in this study with other academic work will impede maximum devotion to the research. Howbeit, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.

1.9 Definition of terms

Merger: A merger is defined as the amalgamation of two or more companies into a unified entity. Typically, the consolidation of assets, operations, and ownership structures of the merging companies is involved. Mergers may take place for a multitude of reasons, including the pursuit of economies of scale, the desire to broaden market presence, the need to diversify products or services, the aim to acquire new technologies or markets, or the objective of enhancing shareholder value. Merger can take various forms, such as mergers of equals, acquisitions, and hostile takeovers.

Acquisition: Acquisition is a term that commonly denotes the procedure of acquiring or obtaining something, usually through a purchase or other methods of securing control. In business, the term "acquisition" typically denotes the acquisition of one company by another, often entailing the transfer of ownership, assets, and liabilities. This can encompass mergers, in which two companies amalgamate to establish a novel entity, or acquisitions, in which one company assumes control over another. Acquisition can also be defined as the process by which a company obtains resources, customers, or other assets in order to improve its operations or market position.

Business growth; Business growth is defined as the gradual expansion of a company's operations, revenue, market share, and overall scale as time progresses. It encompasses the endeavour to augment profitability, broaden the company's reach into untapped markets or segments, introduce novel offerings or services, optimise operational efficiency, and fortify the company's competitive standing within the industry. Business growth can be assessed using a variety of metrics, including an increase in sales volume, higher profits, a larger market share, or a broader customer base. It is frequently a strategic objective for companies that aspire to thrive and excel in their respective industries.

Business organization: A business organisation, is defined as any entity that is established with the intention of engaging in commercial activities with the ultimate goal of generating profit. These entities can take various legal forms, such as sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). The structure and operations of a business organisation can indeed vary significantly depending on factors such as its size, industry, geographical location, and legal requirements. The primary objective of a business organisation is generally to offer goods or services to customers in return for payment, thereby generating revenue and ensuring the sustainability and growth of the enterprise.