By Lukmon Oloyede.
In the world of business, mergers and acquisitions (M&A) are powerful growth tools used by companies and corporate brands to achieve long-term growth and increased revenue or profitability. They are crucial to the growth and health of an economy being a highly attractive means for business owners and entrepreneurs to expand the value of the wealth they have created.
Prior to 1982 the concept of mergers and acquisitions had minimal actual significance in Nigeria. Historically, very few major mergers took place before that time. But status quo changed ominously after the Securities and Exchange Commission (SEC) began its operations in 1982, marking the beginning of regulated business combinations in Nigeria.
The prospects of mergers and acquisitions in Nigeria have continued to evolve since then. The most striking activities in mergers and acquisitions in Nigeria were undoubtedly the 2005 mergers that took place in the banking sector. More than 35 corporate brands were involved.
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In 2014, Nigeria recorded 24 mergers and acquisitions, driven largely by the continuing divestments by banks from non-core financial services, according to official data of Securities and Exchange Commission (SEC). Quite a significant number of M&A also took place in 2015 despite the political and economic scuffle of the year.
This year MTN kicked off with finalization of its acquisition of Visafone, the largest CDMA operator in Nigeria. Also, on Saturday, January 30th the world’s largest beverage company, Coca-cola formally announced that it hasacquired 40 percent shareholding inChi Limited, one of Nigeria’s largest juice and dairy company.
Although the financial terms of the Coca-Cola and Chi Limited deal is yet to be disclosed, it is estimated to be about $400m. This investment in Nigeria is coke’s biggest overseas acquisition since 2012.
Of course, reasons for making acquisitions vary from one company to another. Speed of access to new product or market areas, increase in market share, access economies of scale, to secure better distribution or acquisition of intangible assets are some of the major motives many firms seek such deal.
The deal by the aforementioned firms, according to analyst, will redouble and deepen both the market dominance of the acquiring companies. It will give MTN an increased edge over other mobile operators as the first major operator to introduce 4G voice telephony (VoLTE). For Coca-Cola, the deal signals the company’s plan for near total dominance of the market in Africa by 2020 and redoubles its effort to expand beyond soft drink and soda segment.
While acquisition have often help brand owners reduce competition, enable economies of scale, overcomes barriers to entry and synergy, the issue of incompatibility of management styles, structures and culture as well as integration often lead to massive sack of staff especially from the acquired firm.
“In a bid to avoid corporate culture clashes or redundancy – most times – a lot of people end up losing their jobs. With the present situation of the country, the unemployment rate is swelling every day. So issue of merger and acquisition often create fear and loss of jobs – thereby weakening the economy in that viewpoint”, Mr. Olaseni Durojaiye, an acquisition analyst raised concern.
Also commenting on the issue, Mr. AyodeleAyopo, a Lagos-based Public Relations expert noted that “both MTN and Coca-Cola set out to deepen their brand equity by the addition of Visafone and Chi respectively. The leadership influence of the brands to muscle out competitors definitely is boosted. However, it is surprising that Chi Limited decided to sell out 40% of its stake to Coca-Cola because they are also a big market player and arguable unrivaled in the juice market”.
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