Effects Of Mergers And Acquisitions On Organizational Performance Of Insurance Industry In Kenya: A Case Study Of Sanlam

Abstract

In today’s globalized economy, mergers and acquisitions are being increasingly used by corporates world over to improve their competitiveness and performance through increased market share, product diversification, cost and risk reductions, resource mobilization and economies of scale among others. However, despite their prominence, the failure rates of mergers and acquisitions remains high while their effect on organizational performance remains contested. This study sought to examine the effects of mergers and acquisitions on organizational performance of the Insurance Industry in Kenya using a case of Sanlam Kenya. The study adopted a descriptive research design. Sanlam Kenya was the study unit. The study used secondary data which was obtained from the annual financial and management reports of Sanlam Kenya for a period of 6 years between 2011 and 2016. The study period was divided into two parts; pre-merger/acquisition period [2011-2013] and the post-merger/acquisition period [2014-2016] for effective analysis. The study data was analyzed using descriptive statistics. In addition, the study applied a two tailed paired sample T-test statistics at a significance level of 5% to test whether there were statistically significant differences of means between the pre-merger/acquisition and post-merger/acquisition study variables. The statistical analysis was done using the Statistical Package for Social Sciences (SPSS, version 23.0). The study established that the changes in the M&A-induced managerial efficiency as denoted by ICR (p = 0.089) and ER (p = 0.268); M&A-led human capital rationalization as denoted by Revenue per Employee (p = 0.156) and organizational performance as denoted by ROA (p = 0.318) and ROE (p = 0.368) of Sanlam Kenya were statistically insignificant in the post merger/acquisition period. However, the changes in the M&A-based market penetration as denoted by market share (p = 0.019) of Sanlam Kenya were statistically significant in the post merger/acquisition period. The study concluded that both managerial efficiency and human capital rationalization had an insignificant effect while market penetration had a significant effect on the organizational performance of Sanlam Kenya in the post merger/acquisition period. To improve on its managerial efficiency, the study recommends that Sanlam Kenya should strive to strike a good balance between its net earned premiums and incurred claims and operating expenses. Sanlam Kenya should also review its human capital rationalization policies in the post merger/acquisition period in order to ensure that they are able to effectively leverage on their workforce to enhance its organizational performance.