Banking industry is considered to be one of the fundamental sectors that remarkably affect global financial indicators, and is perceived as the most crucial benchmark within the following:
- Financial liberalization
- Banks privatization
- Shifting towards international banking
- Banking services restructuring
- Expanding the possibility of banking merger
Over the past three decades, the banking and all financial services have been growing remarkably with services’ development and improvement. The process of merger and acquisition is a necessary factor in the banking industry that require developing small banks’ performance.
The possibility of increasing this growth and expansion in the market, some fundamental processes must be performed in order to guarantee this prosperity and indicate good development, are collected as per the below:
- Consecutive development in the field of information and technology
- Orientation for large economic alliances
This process requires a composition between the units of large banks in order to create the ability to contribute in financing large investments and projects for the purpose of serving programs and plans for boosting the economic development.
In addition, the global financial crisis have improved the process of integration within the banking sector significantly. On the other hand, one of the worldwide key repercussions during the fiscal crisis that firstly began in the United States of America bank in September 2008 was the real estate deterioration in the market, and the bankruptcy of America’ 4th largest investment bank; “Lehman Brothers and Bank Washington Mutual” at the same year.
Simultaneously, the 3rd largest investment bank of America; “Merrill Lynch” had a strong effect in indicating how deep the crisis was considering that Bank of America have bought it only for 50 million dollars.
This study will be highlighting on the merger process that was performed between two Lebanese banks back in 2004, Audi Bank and Saradar, emphasizing on the impact of the financial performance of Audi-Saradar groups. Therefore, through the study, an examination will be performed in order to monitor the returns on assets and the returns on the equity during the pre and post-merger of both banks.
Merger and acquisition are universally used in order to achieve business stability and ongoing development. Whereby, some consider that merger and acquisition are considered to be the same term, (Kathy L., Amedu S., Bello M.S., 2005). But in fact:
- Merger is the process of joining two or more companies that are separate companies forming it as a unit in order to form one large company.
- Acquisition is the process of seizing other companies for the same purposes.
This practice can either be sociable or aggressive, and mainly the acquirer preserves the governance over the company obtained, (Jimmy, 2008: Alao, 2010). The process of merger and acquisition usually occur for the purpose of realizing the effectiveness that results due to the diversification of the scales of economies and the increasing level of the business procedure that lead to boosting its performance, (Soludo C., 2004).
This process can as well be classified under three basic types, (Avulala. E., 2015):
- Horizontal
- Vertical
- Conglomerate
The horizontal merger and acquisition unites two similar companies within the same industry; mainly, this process is considered to be desire driven for the purpose of increasing market strength, (Beaver, 2015). If to give an accurate example, Adidas have Reebok as its direct competitor, and it might lead to eliminating the rivalry and lead Reebok into enlarging its marketplace.
Vertical merger and acquisition are usually two companies that are linked to the buyer-seller kind and are mainly united under one single ownership, such as different companies who agree to join their business with their suppliers; those who agree are mainly reaching various productions’ stages, (Arnold, 2011).
Conglomerate merger and acquisition happens when two or more companies with different industries or does not have any related supplier merge in order to form a single business, it is not considered to be rivals, such as P&G consumer goods and Gillette Company back in 2005, (EconomyWatch, 2010).
The Lebanese banking sector is considered to be the leader in the MENA region that have a distinctive role worldwide, in terms of having the Lebanese banking sector as a stable and sound in regards to its financial processes. It also have a core role in the economic situation in the Lebanese market, where banks mainly control all the financial system of the entire company and are the key source of business credits and individuals’ credits, (Hiyam Sujud & Boutheina Hashem, 2017).
The banking sector in Lebanon is the dominant sector that move the economy within the market, whereby, as per the statistics of 2016, there are 66 operating banks that are distributed between 17 investment banks and 49 commercial banks. Moreover, most of the Lebanese banks are aiming to expand in foreign market as well as in domestic market in order to expand their profits’ sources, improve the profitability, empower and assets their products’ scope, (Hiyam Sujud & Boutheina Hashem, 2017).
On the other hand, banks and company aim to excessively boost their market, diversify or share their products, due to the importance of banking sector impact on the Lebanese economy in order to confirm that market operation is efficient, (EconomyWatch, 2010).
The fundamental pillar of this study is to assess the effectiveness of whether small banks are able to operate and succeed or the merger and acquisition will increase their competition and their stability.
Merger and acquisition will ensure a well improved outcome if it was controlled effectively by banks with close or similar size; if only large banks are being developed through the activities of merger and acquisition, a big gap will take place between small and large banks, and it would unfortunately affect the margins in profits of the small banks that is able to attract clients only by the process of receiving lower services’ charges, while on the other hand, the same gap might allow as well large banks to preserve a big scale of profits’ margin because of the small competition. The adopted research philosophy is based on the positivism approach.
For the purpose of attaining the objectives of the study and answer the research question, empirical methods shall be used based on quantitative analysis with logical interpretation for pertaining results and facts. Based upon the given content, merger and acquisition at a certain level, does not allow only help overcoming the problems faced, but it as well offers multiple chances that will certainly support banks to improve their finances in multiple forms.
Through evaluating the Lebanese banks financial indicators, this study will assure whether merger and acquisition have an influence on the banks’ ability to meet their objectives. Moreover, it is crucial to examine if merger and acquisition obtain any negative impact on the effective profitability of the Lebanese banks over a certain period of time. Therefore, an objective conduction of thesis will be applied to attain the research objective.
For the purpose of identifying the outcomes of the merger and acquisition and its impact on the economic situation and growth in banks’ industry, a feasibility analysis along with a survey shall be conducted in order to answer the research question through providing related findings that lead to the research objectives.
Mainly, quantitative research strategy shall be adopted along with some fixed qualitative data. Through using structured interviews that will be conducted in relation to SMEs or banks’ for the purpose of understanding more the process of merger and acquisition, to collect related data and to obtain guidelines that help in forming the correct survey. The survey will be distributed to a defined sample of banks’ or SMEs upper echelon management.
The research study is evaluative as it is intending to discover how well merges and acquisition goes in banks and SMEs. Moreover, to allocate related findings about the feasibility of this process in financial institution, to come up with a relevant conclusion about whether merger and acquisition plays a major role in economic growth.
As it was already mentioned a structured interviews will be conducted for the data collection process and the survey and analysis preparation, where the research will be depending on. So, I have chosen to work on the mixed method, whereby quantitative and qualitative shall be inserted using mostly the quantitative method with the collection of some qualitative data.
The study will touch base with the impact of merger and acquisition on the performance of the banking sector at a specific point of time, whereby the study have started during the end of 2018 and shall continue during the first trimester of 2019; and based upon that the research will be based on cross sectional.
Considering that the topic is related to the merger and acquisition, the population shall be focused on bank Audi management, from the first level all the way to the upper echelon management.
As per bank Audi head office, the total number of employees is 6,250 person. Additionally, as per the management of bank Audi, each branch have its management and all are related to the head office, the total population shall be revealed in the total number of managers in each branch in relevance to the head office.
The research adopted is based on the sampling technique of a quantitative probability where all the samples have an equal and known opportunity of being selected. A multi-stage Cluster sampling is mainly the chosen probability sampling technique, where the target population shall be divided into subpopulations or different clusters. And at the end, any random sample shall be selected from every cluster.
A structured questionnaire shall be conducted with around 10 to 15 managers at bank Audi. These managers have already a full knowledge on the business’ process and merger and acquisitions’ criteria, and their ability to transfer this experience to others, maybe in different perspective or point of view; bank Audi managers will highlight the core factors that will support the questionnaire.
The primary data are collected through using a structured questionnaire. It is the set of related questions that will be asked for a large sampling group, representing the defined targeted population (Bank Audi Managers), in order to attain a quantitative analysis that lead to the needed results.
